e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2007
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number 1-13610
PMC COMMERCIAL TRUST
(Exact name of registrant as specified in its charter)
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TEXAS
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75-6446078 |
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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17950 Preston Road, Suite 600, Dallas, TX 75252
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(972) 349-3200 |
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(Address of principal executive offices)
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(Registrants telephone number) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o |
Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). YES o NO þ
As of August 3, 2007, the Registrant had outstanding 10,765,033 Common Shares of Beneficial
Interest, par value $.01 per share.
PMC COMMERCIAL TRUST AND SUBSIDIARIES
INDEX
PART I
Financial Information
ITEM 1.
Financial Statements
1
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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|
|
|
|
|
|
|
|
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June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(Unaudited) |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable, net |
|
$ |
169,020 |
|
|
$ |
169,181 |
|
Retained interests in transferred assets |
|
|
53,399 |
|
|
|
55,724 |
|
Cash and cash equivalents |
|
|
11,943 |
|
|
|
3,739 |
|
Restricted investments |
|
|
1,392 |
|
|
|
995 |
|
Mortgage-backed security of affiliate |
|
|
559 |
|
|
|
643 |
|
Deferred tax asset, net |
|
|
189 |
|
|
|
203 |
|
Due from affiliates, net |
|
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24 |
|
|
|
|
|
Real estate investments, net |
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|
|
|
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|
4,414 |
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Other assets |
|
|
3,480 |
|
|
|
5,505 |
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|
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|
Total assets |
|
$ |
240,006 |
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|
$ |
240,404 |
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|
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|
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|
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|
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LIABILITIES AND BENEFICIARIES EQUITY |
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Liabilities: |
|
|
|
|
|
|
|
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Credit facilities |
|
$ |
29,143 |
|
|
$ |
26,968 |
|
Junior subordinated notes |
|
|
27,070 |
|
|
|
27,070 |
|
Mortgage notes and debentures payable |
|
|
8,162 |
|
|
|
10,803 |
|
Borrower advances |
|
|
4,754 |
|
|
|
3,694 |
|
Redeemable preferred stock of subsidiary |
|
|
3,718 |
|
|
|
3,668 |
|
Dividends payable |
|
|
3,292 |
|
|
|
4,365 |
|
Deferred gains on property sales |
|
|
2,640 |
|
|
|
1,574 |
|
Accounts payable and accrued expenses |
|
|
1,476 |
|
|
|
2,578 |
|
Due to affiliates, net |
|
|
|
|
|
|
683 |
|
Other liabilities |
|
|
855 |
|
|
|
810 |
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|
|
|
|
|
|
|
|
|
|
|
|
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Total liabilities |
|
|
81,110 |
|
|
|
82,213 |
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|
|
|
|
|
|
|
|
|
|
|
|
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|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative preferred stock of subsidiary |
|
|
900 |
|
|
|
900 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficiaries equity: |
|
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|
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|
Common shares of beneficial interest; authorized 100,000,000 shares of $0.01 par value;
11,051,383 and 11,040,153 shares issued at June 30, 2007 and December 31, 2006,
respectively, 10,765,033 and 10,753,803 shares outstanding at June 30, 2007 and
December 31, 2006, respectively |
|
|
111 |
|
|
|
110 |
|
Additional paid-in capital |
|
|
152,282 |
|
|
|
152,178 |
|
Net unrealized appreciation of retained interests in transferred assets |
|
|
3,322 |
|
|
|
3,256 |
|
Cumulative net income |
|
|
144,974 |
|
|
|
137,984 |
|
Cumulative dividends |
|
|
(139,462 |
) |
|
|
(133,006 |
) |
|
|
|
|
|
|
|
|
161,227 |
|
|
|
160,522 |
|
Less: Treasury stock; at cost, 286,350 shares at June 30, 2007 and December 31, 2006 |
|
|
(3,231 |
) |
|
|
(3,231 |
) |
|
|
|
|
|
Total beneficiaries equity |
|
|
157,996 |
|
|
|
157,291 |
|
|
|
|
|
|
Total liabilities and beneficiaries equity |
|
$ |
240,006 |
|
|
$ |
240,404 |
|
|
|
|
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|
The accompanying notes are an integral part of these consolidated financial statements.
2
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
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|
(Unaudited) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
8,254 |
|
|
$ |
7,611 |
|
|
$ |
4,198 |
|
|
$ |
3,929 |
|
Income from retained interests in transferred assets |
|
|
3,978 |
|
|
|
4,935 |
|
|
|
2,077 |
|
|
|
2,682 |
|
Hotel property revenues |
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
169 |
|
Other income |
|
|
1,381 |
|
|
|
1,863 |
|
|
|
640 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total revenues |
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|
13,613 |
|
|
|
14,684 |
|
|
|
6,915 |
|
|
|
7,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Expenses: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
2,745 |
|
|
|
2,784 |
|
|
|
1,420 |
|
|
|
1,379 |
|
Salaries and related benefits |
|
|
2,381 |
|
|
|
2,273 |
|
|
|
1,214 |
|
|
|
1,213 |
|
General and administrative |
|
|
1,296 |
|
|
|
1,257 |
|
|
|
580 |
|
|
|
635 |
|
Provision for loss on rent and related receivables |
|
|
239 |
|
|
|
425 |
|
|
|
|
|
|
|
125 |
|
Permanent impairments on retained interests in transferred assets |
|
|
123 |
|
|
|
584 |
|
|
|
99 |
|
|
|
536 |
|
Provision for (reduction of) loan losses, net |
|
|
52 |
|
|
|
53 |
|
|
|
(13 |
) |
|
|
2 |
|
Hotel property expenses |
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
6,836 |
|
|
|
7,630 |
|
|
|
3,300 |
|
|
|
4,030 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax provision, minority interest
and discontinued operations |
|
|
6,777 |
|
|
|
7,054 |
|
|
|
3,615 |
|
|
|
3,722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
|
(347 |
) |
|
|
(334 |
) |
|
|
(205 |
) |
|
|
(250 |
) |
Minority interest (preferred stock dividend of subsidiary) |
|
|
(45 |
) |
|
|
(45 |
) |
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
6,385 |
|
|
|
6,675 |
|
|
|
3,387 |
|
|
|
3,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on sales of real estate |
|
|
1,279 |
|
|
|
2,019 |
|
|
|
1,252 |
|
|
|
142 |
|
Impairment losses |
|
|
(233 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
(21 |
) |
Net earnings (losses) |
|
|
(441 |
) |
|
|
91 |
|
|
|
(470 |
) |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
605 |
|
|
|
2,016 |
|
|
|
782 |
|
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,990 |
|
|
$ |
8,691 |
|
|
$ |
4,169 |
|
|
$ |
3,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
10,755 |
|
|
|
10,745 |
|
|
|
10,756 |
|
|
|
10,744 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
10,764 |
|
|
|
10,745 |
|
|
|
10,762 |
|
|
|
10,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
0.59 |
|
|
$ |
0.62 |
|
|
$ |
0.32 |
|
|
$ |
0.32 |
|
Discontinued operations |
|
|
0.06 |
|
|
|
0.19 |
|
|
|
0.07 |
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.65 |
|
|
$ |
0.81 |
|
|
$ |
0.39 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(Unaudited) |
Net income |
|
$ |
6,990 |
|
|
$ |
8,691 |
|
|
$ |
4,169 |
|
|
$ |
3,650 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized appreciation (depreciation) of retained
interests in transferred assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealized appreciation (depreciation) arising during period
|
|
|
287 |
|
|
|
(517 |
) |
|
|
108 |
|
|
|
(28 |
) |
Net realized gains included in net income |
|
|
(221 |
) |
|
|
(334 |
) |
|
|
(111 |
) |
|
|
(156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
(851 |
) |
|
|
(3 |
) |
|
|
(184 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
7,056 |
|
|
$ |
7,840 |
|
|
$ |
4,166 |
|
|
$ |
3,466 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF BENEFICIARIES EQUITY
(In thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2006 |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
|
|
|
|
|
|
|
of Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial |
|
|
|
|
|
Additional |
|
Interests in |
|
Cumulative |
|
|
|
|
|
|
|
|
|
Total |
|
|
Interest |
|
Par |
|
Paid-in |
|
Transferred |
|
Net |
|
Cumulative |
|
Treasury |
|
Beneficiaries |
|
|
|
Outstanding |
|
Value |
|
Capital |
|
Assets |
|
Income |
|
Dividends |
|
Stock |
|
Equity |
Balances, January 1, 2006 |
|
|
10,766,021 |
|
|
$ |
110 |
|
|
$ |
152,047 |
|
|
$ |
4,519 |
|
|
$ |
122,300 |
|
|
$ |
(119,031 |
) |
|
$ |
(2,928 |
) |
|
$ |
157,017 |
|
Net unrealized depreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(851 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(851 |
) |
Shares repurchased |
|
|
(24,100 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(303 |
) |
|
|
(303 |
) |
Share-based compensation expense |
|
|
9,060 |
|
|
|
|
|
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91 |
|
Dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,449 |
) |
|
|
|
|
|
|
(6,449 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,691 |
|
|
|
|
|
|
|
|
|
|
|
8,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2006 |
|
|
10,750,981 |
|
|
$ |
110 |
|
|
$ |
152,138 |
|
|
$ |
3,668 |
|
|
$ |
130,991 |
|
|
$ |
(125,480 |
) |
|
$ |
(3,231 |
) |
|
$ |
158,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2007 |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common |
|
|
|
|
|
|
|
|
|
Appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of |
|
|
|
|
|
|
|
|
|
of Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial |
|
|
|
|
|
Additional |
|
Interests in |
|
Cumulative |
|
|
|
|
|
|
|
|
|
Total |
|
|
Interest |
|
Par |
|
Paid-in |
|
Transferred |
|
Net |
|
Cumulative |
|
Treasury |
|
Beneficiaries |
|
|
|
Outstanding |
|
Value |
|
Capital |
|
Assets |
|
Income |
|
Dividends |
|
Stock |
|
Equity |
Balances, January 1, 2007 |
|
|
10,753,803 |
|
|
$ |
110 |
|
|
$ |
152,178 |
|
|
$ |
3,256 |
|
|
$ |
137,984 |
|
|
$ |
(133,006 |
) |
|
$ |
(3,231 |
) |
|
$ |
157,291 |
|
Net unrealized appreciation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
Share-based compensation expense |
|
|
11,230 |
|
|
|
1 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105 |
|
Dividends ($0.60 per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,456 |
) |
|
|
|
|
|
|
(6,456 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,990 |
|
|
|
|
|
|
|
|
|
|
|
6,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, June 30, 2007 |
|
|
10,765,033 |
|
|
$ |
111 |
|
|
$ |
152,282 |
|
|
$ |
3,322 |
|
|
$ |
144,974 |
|
|
$ |
(139,462 |
) |
|
$ |
(3,231 |
) |
|
$ |
157,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(Unaudited) |
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,990 |
|
|
$ |
8,691 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
67 |
|
|
|
128 |
|
Permanent impairments on retained interests in transferred assets |
|
|
123 |
|
|
|
584 |
|
Net gains on sales of real estate |
|
|
(1,279 |
) |
|
|
(2,019 |
) |
Deferred income taxes |
|
|
14 |
|
|
|
(15 |
) |
Provision for loan losses |
|
|
52 |
|
|
|
53 |
|
Provision for losses on rent and related receivables |
|
|
239 |
|
|
|
425 |
|
Impairment losses |
|
|
233 |
|
|
|
94 |
|
Premium income adjustment |
|
|
49 |
|
|
|
76 |
|
Amortization and accretion, net |
|
|
(121 |
) |
|
|
(147 |
) |
Share-based compensation |
|
|
104 |
|
|
|
91 |
|
Capitalized loan origination costs |
|
|
(108 |
) |
|
|
(140 |
) |
Loans funded, held for sale |
|
|
(1,195 |
) |
|
|
(3,807 |
) |
Proceeds from sale of guaranteed loans |
|
|
2,349 |
|
|
|
4,201 |
|
Loan fees collected (refunded), net |
|
|
142 |
|
|
|
(32 |
) |
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Due to/from affiliates, net |
|
|
(700 |
) |
|
|
(723 |
) |
Other assets |
|
|
451 |
|
|
|
(196 |
) |
Borrower advances |
|
|
651 |
|
|
|
(559 |
) |
Accounts payable and accrued expenses |
|
|
(929 |
) |
|
|
(399 |
) |
Other liabilities |
|
|
104 |
|
|
|
(255 |
) |
|
|
|
|
|
Net cash provided by operating activities |
|
|
7,236 |
|
|
|
6,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Loans funded |
|
|
(22,175 |
) |
|
|
(7,515 |
) |
Principal collected on loans receivable |
|
|
27,001 |
|
|
|
22,433 |
|
Principal collected on retained interests in transferred assets |
|
|
2,539 |
|
|
|
2,498 |
|
Proceeds from assets acquired in liquidation, net |
|
|
1,116 |
|
|
|
1,163 |
|
Proceeds from sales of hotel properties, net |
|
|
1,060 |
|
|
|
3,126 |
|
Proceeds from mortgage-backed security of affiliate |
|
|
110 |
|
|
|
83 |
|
Investment in retained interests in transferred assets |
|
|
(253 |
) |
|
|
|
|
Release of (investment in) restricted investments, net |
|
|
(397 |
) |
|
|
1,019 |
|
Purchase of furniture, fixtures and equipment |
|
|
(37 |
) |
|
|
(72 |
) |
|
|
|
|
|
Net cash provided by investing activities |
|
|
8,964 |
|
|
|
22,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Purchase of treasury shares |
|
|
|
|
|
|
(303 |
) |
Proceeds from (payment of principal on) credit facilities, net |
|
|
2,175 |
|
|
|
(7,000 |
) |
Payment of principal on mortgages payable and debentures |
|
|
(2,642 |
) |
|
|
(10,245 |
) |
Payment of dividends |
|
|
(7,529 |
) |
|
|
(6,454 |
) |
|
|
|
|
|
Net cash used in financing activities |
|
|
(7,996 |
) |
|
|
(24,002 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
8,204 |
|
|
|
4,784 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year |
|
|
3,739 |
|
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
11,943 |
|
|
$ |
8,751 |
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
6
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Interim Financial Statements:
The accompanying consolidated balance sheet of PMC Commercial Trust (PMC Commercial or together
with its wholly-owned subsidiaries, we, us or our) as of June 30, 2007 and the consolidated
statements of income and comprehensive income for the three and six months ended June 30, 2007 and
2006 and beneficiaries equity and cash flows for the six months ended June 30, 2007 and 2006 have
not been audited by independent accountants. In the opinion of management, the financial
statements reflect all adjustments necessary to fairly present our financial position at June 30,
2007 and results of operations for the three and six months ended June 30, 2007 and 2006. These
adjustments are of a normal recurring nature.
Certain notes and other information have been omitted from the interim financial statements
presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be
read in conjunction with the financial statements and notes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2006.
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect (1) the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and (2) the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The results for the three and six months ended June 30, 2007 are not necessarily indicative of
future financial results.
Note 2. Business:
PMC Commercial is a real estate investment trust (REIT) that either directly or through its
subsidiaries, primarily originates loans to small businesses collateralized by first liens on the
real estate of the related business. The majority of these loans are to borrowers in the
hospitality industry. We also originate loans on commercial real estate to borrowers in the
service, retail, multi-family and manufacturing industries and loans guaranteed by the Small
Business Administration (SBA) collateralized by business assets and/or real estate. Our common
shares are traded on the American Stock Exchange under the symbol PCC.
Note 3. Consolidation:
We consolidate entities that we control as well as variable interest entities (VIEs) for which we
are the primary beneficiary. To the extent we do not have a majority voting interest, we use the
equity method to account for investments for which we have the ability to exercise significant
influence over operating and financial policies. Consolidated net income includes our share of the
net earnings of any VIE for which we are not the primary beneficiary. All material intercompany
balances and transactions have been eliminated.
The consolidated financial statements include the accounts of PMC Commercial, First Western SBLC,
Inc. (First Western), PMC Investment Corporation (PMCIC), Western Financial Capital Corporation
(Western Financial), PMC Commercial Trust, Ltd. 1998-1 (PMCT Trust), PMC Funding Corp. (PMC
Funding), PMC Asset Holding, LLC (Asset Holding), PMC Conduit, L.P. (PMC Conduit), PMC
Properties, Inc. (PMC Properties) and separate subsidiaries created in conjunction with the
purchase of certain hotel properties in 1999.
First Western is licensed as a small business lending company that originates loans through the SBA
7(a) Guaranteed Loan Program. PMCIC and Western Financial are licensed specialized small business
investment companies under the Small Business Investment Act of 1958, as amended (SBIA). PMCT
Trust was formed in conjunction with our 1998 structured loan financing transaction. The 1998
structured notes were repaid on December 1, 2006. PMC Funding, Asset Holding and PMC Conduit hold
assets on our behalf. PMC Properties is the operator, through third party managers, of any
hospitality properties. No properties are currently being operated by PMC Properties.
In addition, we own subordinate financial interests in several non-consolidated special purpose
entities (i.e., retained interests in transferred assets (Retained Interests)). These are PMC
Capital, L.P. 1998-1 (the 1998 Partnership), PMC Capital, L.P. 1999-1 (the 1999 Partnership),
PMC Joint Venture, L.P. 2000 (the 2000 Joint Venture), PMC Joint Venture, L.P.
7
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2001 (the 2001 Joint Venture), PMC Joint Venture, L.P. 2002-1 (the 2002 Joint Venture) and PMC
Joint Venture, L.P. 2003 (the 2003 Joint Venture, and together with the 2000 Joint Venture, the
2001 Joint Venture and the 2002 Joint Venture, the Joint Ventures, and the Joint Ventures
together with the 1998 Partnership and the 1999 Partnership, the QSPEs) created in connection
with structured loan sale transactions.
We account for our Retained Interests in accordance with Statement of Financial Accounting
Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities (SFAS No. 140) and Emerging Issues Task Force Issue No. 99-20,
Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial
Assets. While we are the servicer of the assets held by these QSPEs, we are required under the
transaction documents to comply with strict servicing standards and are subject to the approval of
the trustees and/or noteholders regarding any significant issues associated with the assets. As a
result, we believe we have relinquished control of the assets sold to the QSPEs. Accordingly, the
assets, liabilities, partners capital and results of operations of the QSPEs are not included in
our consolidated financial statements.
Note 4. Variable Interest Entities:
A VIE is an entity for which control is achieved through means other than voting rights. An entity
should consolidate a VIE if that entity will absorb a majority of the VIEs expected losses,
receive a majority of the VIEs expected residual returns, or both. The following entities have
been determined to be VIEs:
PMC Conduit
During 2005, we entered into a $100.0 million conduit warehouse facility (the Conduit Facility).
The Conduit Facility operates as a revolving line of credit, collateralized by loans originated by
us, which have been or will be sold to PMC Conduit. The transfers of loans to PMC Conduit did not
meet the requirements of SFAS No. 140 for sale treatment. PMC Commercial has not guaranteed the
repayment of the obligations of the Conduit Facility.
Since PMC Commercial is the primary beneficiary, PMC Conduit is consolidated in the financial
statements of PMC Commercial.
PMC Preferred Capital Trust-A
During 2005, PMC Commercial issued notes payable (the Junior Subordinated Notes) of approximately
$27.1 million due March 30, 2035 to a special purpose subsidiary, PMC Preferred Capital Trust-A, a
Delaware statutory trust (Preferred Trust). The Junior Subordinated Notes, included in our
consolidated balance sheets, are subordinated to PMC Commercials existing debt.
Since PMC Commercial is not considered to be the primary beneficiary, Preferred Trust is not
consolidated in PMC Commercials financial statements. The equity method is used to account for
our investment in the Preferred Trust.
PMCT Plainfield, L.P.
During 2006, we leased a hotel property owned by a separate subsidiary (PMCT Plainfield, L.P.)
which was previously consolidated. The hotel property is the primary asset of the subsidiary. The
lessee has the option, and is expected to exercise this option, to purchase the property for
$1,825,000 at termination of the lease in January 2011 or earlier if certain events occur. Based
on the terms of this lease agreement including the fixed price purchase option, the subsidiary was
determined to be a VIE.
Since PMC Commercial is not considered to be the primary beneficiary, PMCT Plainfield, L.P. is not
consolidated in PMC Commercials financial statements. The equity method is used to account for
our investment in PMCT Plainfield, L.P.
Note 5. Reclassifications:
Certain prior period amounts have been reclassified to conform to the current year presentation.
These reclassifications had no effect on previously reported net income or total beneficiaries
equity.
8
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6. Share-Based Compensation Plans:
We use the fair value recognition provisions of SFAS No. 123R, Accounting for Stock-Based
Compensation, to account for all awards granted, modified or settled.
We granted 20,000 option awards on June 9, 2007 at an exercise price of $14.01 (the closing price
on June 8, 2007). The fair value of this option award was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumption |
|
|
|
|
|
|
|
|
Expected Term (years) |
|
|
3.0 |
|
|
|
|
Risk-Free Interest Rate |
|
|
4.99 |
% |
|
|
|
|
Expected Dividend Yield |
|
|
8.57 |
% |
|
|
|
|
Expected Volatility |
|
|
13.41 |
% |
|
|
|
|
Expected Forfeiture Rate |
|
|
5.0 |
% |
The expected term of the options granted represents the period of time that the options are
expected to be outstanding and was based on historical data. The risk-free rate was based on the
three-year U.S. Treasury rate corresponding to the expected term of the options. We used
historical information to determine our expected volatility and forfeiture rates. We recorded
compensation expense of approximately $11,000 during the three and six months ended June 30, 2007
related to this option grant. We granted 33,250 option awards on June 10, 2006 at an exercise
price of $12.72 (the closing price on June 9, 2006) and recorded compensation expense of
approximately $19,000 during the three and six months ended June 30, 2006 related to this option
grant.
In addition, we issued an aggregate of 11,400 restricted shares to executive officers and our Board
of Trust Managers on June 9, 2007 at the then current market price of the shares of $14.01. We
issued an aggregate of 9,060 restricted shares to executive officers and our Board of Trust
Managers on both June 10, 2006 and June 11, 2005 at the then current market prices of the shares.
The restricted share awards vest based on two years of continuous service with one-third of the
shares vesting immediately upon issuance of the shares and one-third vesting at the end of each of
the next two years. Restricted share awards provide for accelerated vesting if there is a change
in control (as defined in the plan).
Compensation expense related to the restricted shares is being recognized over the vesting periods.
We recorded compensation expense of approximately $73,000 and $55,000 and $93,000 and $72,000
during the three and six months ended June 30, 2007 and 2006, respectively, related to the
restricted shares. As of June 30, 2007, there was approximately $116,000 of total unrecognized
compensation expense related to the restricted shares which will be recognized over the next two
years.
Note 7. Recently Issued Accounting Pronouncements:
The Financial Accounting Standards Board (FASB) issued SFAS No. 157 (SFAS No. 157), Fair Value
Measurements in September 2006. SFAS No. 157 clarifies the principle that fair value should be
based on the assumptions market participants would use when pricing an asset or liability,
establishes a fair value hierarchy that prioritizes the information used to develop those
assumptions and expands disclosures about fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We
are currently evaluating the impact of SFAS No. 157 on our consolidated financial statements;
however, we do not expect the adoption to have a material impact on our consolidated financial
statements.
The FASB issued SFAS No. 159 (SFAS No. 159), The Fair Value Option for Financial Assets and
Financial Liabilities in February 2007. SFAS No. 159 allows entities the option to measure
eligible financial instruments at fair value at specified dates. Such election, which may be
applied on an instrument by instrument basis, is typically irrevocable once elected. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We have not yet
determined the impact, if any, of SFAS No. 159 on our consolidated financial statements.
9
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Statement of Position 07-01 (SOP 07-01), Clarification of the Scope of the Audit and Accounting
Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for
Investments in Investment Companies, was issued in June 2007. SOP 07-01 provides guidance for
determining whether an entity is within the scope of the AICPA Audit and Accounting Guide for
Investment Companies. For entities that are determined to be investment companies, SOP 07-01 also
addresses whether investment company accounting should be retained by a parent company in
consolidation. SOP 07-01 is effective for fiscal years beginning on or after December 15, 2007.
We have not yet determined the impact, if any, of SOP 07-01 on our consolidated financial
statements.
Note 8. Loans Receivable, net:
Loans receivable, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
SBIC commercial mortgage loans |
|
$ |
26,910 |
|
|
$ |
36,243 |
|
SBA 7(a) Guaranteed Loan Program loans |
|
|
12,845 |
|
|
|
14,749 |
|
Conduit Facility loans (1) |
|
|
47,920 |
|
|
|
43,612 |
|
Other commercial mortgage loans |
|
|
81,797 |
|
|
|
75,089 |
|
|
|
|
|
|
Total loans receivable |
|
|
169,472 |
|
|
|
169,693 |
|
Less: |
|
|
|
|
|
|
|
|
Deferred commitment fees, net |
|
|
(403 |
) |
|
|
(449 |
) |
Loan loss reserves |
|
|
(49 |
) |
|
|
(63 |
) |
|
|
|
|
|
Loans receivable, net |
|
$ |
169,020 |
|
|
$ |
169,181 |
|
|
|
|
|
|
|
|
|
(1) |
|
These loans are collateral for our Conduit Facility. |
The activity in our loan loss reserves was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Balance, beginning of year |
|
$ |
63 |
|
|
$ |
427 |
|
Provision for loan losses |
|
|
66 |
|
|
|
94 |
|
Reduction of loan losses |
|
|
(14 |
) |
|
|
(41 |
) |
Principal balances written-off, net |
|
|
(66 |
) |
|
|
(467 |
) |
|
|
|
|
|
Balance, end of period |
|
$ |
49 |
|
|
$ |
13 |
|
|
|
|
|
|
10
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Impaired loans are defined by generally accepted accounting principles as loans for which it
is probable that the lender will be unable to collect all amounts due according to the original
contractual terms of the loan. Information on those loans considered to be impaired loans was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Impaired loans requiring reserves |
|
$ |
90 |
|
|
$ |
82 |
|
Impaired loans expected to be fully recoverable (1) |
|
|
558 |
|
|
|
1,837 |
|
|
|
|
|
|
Total impaired loans |
|
$ |
648 |
|
|
$ |
1,919 |
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Average impaired loans |
|
$ |
1,663 |
|
|
$ |
1,698 |
|
|
$ |
1,795 |
|
|
$ |
516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on impaired loans (2) |
|
$ |
|
|
|
$ |
70 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Loans acquired were recorded at their estimated fair value and as such are reflected at
discounted amounts. Certain of these loans have no reserves and are thus shown in impaired
loans expected to be fully recoverable with respect to our recorded investment in the loan;
however, we do not expect to collect all amounts due according to the original contractual
terms of the note. |
(2) |
|
Recorded primarily on the cash basis. |
Note 9. Real Estate Investments:
In April 2007, we sold a hotel property for $2.6 million and recognized a gain of approximately
$228,000. We financed the sale of the property through origination of a loan of $2.1 million with
an interest rate of LIBOR plus 3.75% and maturity and amortization periods of 20 years. The loan
was repaid during July 2007.
During June 2007, we sold a hotel property for approximately $2.9 million and recognized a gain of
approximately $852,000. We financed the sale of the property through origination of a loan of
approximately $2.3 million with an interest rate of LIBOR plus 3.75% and maturity and amortization
periods of 20 years.
Note 10. Retained Interests:
In our structured loan sale transactions, we contributed loans receivable to a QSPE in
exchange for cash and beneficial interests in that entity. The QSPE issued notes payable (the
Structured Notes) to unaffiliated parties (Structured Noteholders). The QSPE then distributed
a portion of the proceeds from the Structured Notes to us. The Structured Notes are collateralized
solely by the assets of the QSPE which means that should the financial assets in the QSPE be
insufficient for the trustee to make payments on the Structured Notes, the Structured Noteholders
have no recourse against us. Upon the completion of our structured loan sale transactions, we
recorded the transfer of loans receivable as a sale in accordance with SFAS No. 140. As a result,
the loans receivable contributed to the QSPE, the Structured Notes issued by the QSPE, and the
operating results of the QSPE are not included in our consolidated financial statements. Retained
Interests are carried at estimated fair value, with realized gains and permanent impairments
recorded in net income and unrealized gains and losses recorded in beneficiaries equity.
We completed joint structured loan sale transactions with PMC Capital, Inc., our affiliate through
common management. Our interests related to the loans receivable we contributed to these
structured loan sale transactions are the Originated Structured Loan Sale Transactions. During
2004, we acquired PMC Capital, Inc.s Retained Interests in the Joint Ventures and 100% of
11
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the 1998
Partnership and the 1999 Partnership (collectively, the Acquired Structured Loan Sale
Transactions).
Information pertaining to our Originated Structured Loan Sale Transactions as of June 30, 2007 was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
|
Joint Venture |
|
Joint Venture |
|
Joint Venture |
|
Joint Venture |
|
|
(Dollars in thousands) |
Principal outstanding on sold loans |
|
$ |
27,713 |
|
$ |
5,526 |
|
$ |
13,282 |
|
$ |
18,888 |
Structured Notes balance outstanding |
|
$ |
22,900 |
|
$ |
2,923 |
|
$ |
10,597 |
|
$ |
15,783 |
Cash in the collection account |
|
$ |
975 |
|
$ |
60 |
|
$ |
156 |
|
$ |
1,627 |
Cash in the reserve account |
|
$ |
1,654 |
|
$ |
624 |
|
$ |
803 |
|
$ |
1,225 |
Weighted average interest rate on loans (1) |
|
|
9.56 |
% |
|
|
9.63 |
% |
|
|
9.46 |
% |
|
|
L+4.02 |
% |
Discount rate assumptions (2) |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
8.5% to 12.6% |
Constant prepayment rate assumption (3) |
|
|
18.00 |
% |
|
|
18.00 |
% |
|
|
18.00 |
% |
|
|
16.00 |
% |
Weighted average remaining life of
Retained Interests (4) |
|
1.83 years |
|
1.45 years |
|
2.17 years |
|
2.25 years |
Aggregate losses assumed (5) |
|
|
1.25 |
% |
|
|
|
% |
|
|
1.45 |
% |
|
|
1.02 |
% |
Aggregate principal losses to date (6) |
|
|
0.33 |
% |
|
|
0.56 |
% |
|
|
|
% |
|
|
|
% |
|
|
|
(1) |
|
Variable interest rates are denoted by the spread over the 90-day LIBOR (L). |
(2) |
|
Discount rates utilized were (a) 7.9% to 8.5% for our required overcollateralization, (b)
9.6% for our reserve funds and (c) 12.6% for our interest-only strip receivables. |
(3) |
|
The prepayment rate was based on the actual performance of the loan pools, adjusted for
anticipated principal prepayments considering similar loans. |
(4) |
|
The weighted average remaining life of Retained Interests was calculated by summing the
product of (a) the sum of the principal collections expected in each future period multiplied
by (b) the number of periods until collection, and then dividing that total by (c) the
remaining principal balance. |
(5) |
|
Represents aggregate estimated future losses as a percentage of the principal outstanding
based upon per annum losses ranging from 0.0% to 1.3%. To the extent any loans are likely to
be liquidated in the next twelve months, estimated losses were assumed to occur during that
period. Generally, no losses are assumed in the twelve months ending June 30, 2008 for those
structured loan sale transactions with no current potential impaired loans. |
(6) |
|
Represents aggregate principal losses to date as a percentage of the principal outstanding at
inception. For the 2000 Joint Venture, represents the loss on a loan receivable repurchased
by PMC Commercial due to a loan modification and assumption. For the 2001 Joint Venture,
represents the loss on a delinquent loan receivable with a charged-off status repurchased by
PMC Commercial. |
12
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Information pertaining to our Acquired Structured Loan Sale Transactions as of June 30, 2007 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 |
|
2001 |
|
2002 |
|
2003 |
|
|
1998 |
|
1999 |
|
Joint |
|
Joint |
|
Joint |
|
Joint |
|
|
Partnership |
|
Partnership |
|
Venture |
|
Venture |
|
Venture |
|
Venture |
|
|
(Dollars in thousands) |
Principal outstanding on sold loans |
|
$ |
10,703 |
|
$ |
13,347 |
|
$ |
8,301 |
|
$ |
15,091 |
|
$ |
16,556 |
|
$ |
30,785 |
Structured Notes balance outstanding |
|
$ |
10,228 |
|
$ |
11,070 |
|
$ |
5,622 |
|
$ |
11,211 |
|
$ |
12,549 |
|
$ |
26,822 |
Cash in the collection account |
|
$ |
253 |
|
$ |
1,444 |
|
$ |
133 |
|
$ |
191 |
|
$ |
496 |
|
$ |
2,087 |
Cash in the reserve account |
|
$ |
1,335 |
|
$ |
1,215 |
|
$ |
563 |
|
$ |
989 |
|
$ |
1,017 |
|
$ |
1,965 |
Weighted average interest rate of loans (1) |
|
|
P+0.95 |
% |
|
|
9.09 |
% |
|
|
9.00 |
% |
|
|
9.62 |
% |
|
|
9.52 |
% |
|
|
L+4.02 |
% |
Discount rate assumptions (2) |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
7.9% to 12.6% |
|
8.5% to 12.6% |
Constant prepayment rate assumption (3) |
|
|
16.00 |
% |
|
|
18.00 |
% |
|
|
18.00 |
% |
|
|
18.00 |
% |
|
|
18.00 |
% |
|
|
16.00 |
% |
Weighted average remaining life of
Retained Interests (4) |
|
2.58 years |
|
2.22 years |
|
1.98 years |
|
1.42 years |
|
1.92 years |
|
2.37 years |
Aggregate principal losses assumed (5) |
|
|
1.22 |
% |
|
|
1.22 |
% |
|
|
1.81 |
% |
|
|
1.04 |
% |
|
|
1.33 |
% |
|
|
1.24 |
% |
Aggregate principal losses to date (6) |
|
|
|
% |
|
|
|
% |
|
|
4.28 |
% |
|
|
1.78 |
% |
|
|
1.31 |
% |
|
|
|
% |
|
|
|
(1) |
|
Variable interest rates are denoted by the spread over the prime rate (P) or the
90-day LIBOR (L). |
(2) |
|
Discount rates utilized were (a) 7.9% to 8.5% for our required overcollateralization, (b)
9.6% for our reserve funds and (c) 12.6% for our interest-only strip receivables. |
(3) |
|
The prepayment rate was based on the actual performance of the loan pools, adjusted for
anticipated principal prepayments considering similar loans. |
(4) |
|
The weighted average remaining life of Retained Interests was calculated by summing the
product of (a) the sum of the principal collections expected in each future period multiplied
by (b) the number of periods until collection, and then dividing that total by (c) the
remaining principal balance. |
(5) |
|
Represents aggregate estimated future losses as a percentage of the principal outstanding
based upon per annum losses ranging from 0.0% to 2.1%. To the extent any loans are likely to
be liquidated in the next twelve months, estimated losses were assumed to occur during that
period. Generally, no losses are assumed in the twelve months ending June 30, 2008 for those
structured loan sale transactions with no current potential impaired loans. |
(6) |
|
Represents aggregate principal losses to date as a percentage of the principal outstanding at
inception. For the 2000 Joint Venture, represents historical losses incurred prior to our
acquisition. For the 2001 Joint Venture and the 2002 Joint Venture, represents losses on
delinquent loans receivable with a charged-off status repurchased by PMC Commercial. |
At June 30, 2007, none of the loans sold to the QSPEs were delinquent over 60 days as to principal
and interest.
First Western has Retained Interests related to the sale of loans originated pursuant to the SBA
7(a) Guaranteed Loan Program. The SBA guaranteed portions of First Westerns loans receivable are
sold to either dealers in government guaranteed loans receivable or institutional investors
(Secondary Market Loan Sales) as the loans are fully funded. On Secondary Market Loan Sales, we
may retain an excess spread between the interest rate paid to us from our borrowers and the rate we
pay to the purchaser of the guaranteed portion of the note and servicing costs. At June 30, 2007,
the aggregate principal balance of First Westerns serviced loans receivable on which we had an
excess spread was approximately $37.5 million and the weighted average excess spread was
approximately 0.6%. In determining the fair value of our Retained Interests related to Secondary
Market Loan Sales, our assumptions at June 30, 2007 included a prepayment speed of 20% per annum
and a discount rate of 12.6%.
The estimated fair value of our Retained Interests is based upon an estimate of the discounted
future cash flows we will receive. In determining the present value of expected future cash flows,
estimates are made in determining the amount and timing of those cash flows and the discount rates.
The amount and timing of cash flows is generally determined based on estimates of loan losses and
anticipated prepayment speeds relating to the loans receivable contributed to the QSPE. Actual
13
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
loan losses and prepayments may vary significantly from assumptions. The discount rates that we
utilize in computing the estimated fair value are based upon estimates of the inherent risks
associated with each cash flow stream. Due to the limited number of entities that conduct
transactions with similar assets, the relatively small size of our Retained Interests and the
limited number of buyers for such assets, no readily ascertainable market exists. Therefore, our
estimate of the fair value may or may not vary from what a willing buyer would pay for these
assets.
Our Retained Interests consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
|
Estimated Fair Value |
|
|
|
|
OC Piece |
|
Reserve Fund |
|
IO Receivable |
|
Total |
|
Cost |
|
|
(In thousands) |
First Western |
|
$ |
|
|
|
$ |
|
|
|
$ |
618 |
|
|
$ |
618 |
|
|
$ |
582 |
|
1998 Partnership |
|
|
610 |
|
|
|
1,089 |
|
|
|
309 |
|
|
|
2,008 |
|
|
|
1,926 |
|
1999 Partnership |
|
|
3,769 |
|
|
|
1,035 |
|
|
|
274 |
|
|
|
5,078 |
|
|
|
4,895 |
|
2000 Joint Venture |
|
|
8,698 |
|
|
|
1,969 |
|
|
|
1,071 |
|
|
|
11,738 |
|
|
|
10,353 |
|
2001 Joint Venture |
|
|
6,816 |
|
|
|
1,475 |
|
|
|
529 |
|
|
|
8,820 |
|
|
|
8,507 |
|
2002 Joint Venture |
|
|
7,441 |
|
|
|
1,644 |
|
|
|
820 |
|
|
|
9,905 |
|
|
|
9,069 |
|
2003 Joint Venture |
|
|
10,702 |
|
|
|
2,888 |
|
|
|
1,642 |
|
|
|
15,232 |
|
|
|
14,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,036 |
|
|
$ |
10,100 |
|
|
$ |
5,263 |
|
|
$ |
53,399 |
|
|
$ |
50,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 |
|
|
Estimated Fair Value |
|
|
|
|
OC Piece |
|
Reserve Fund |
|
IO Receivable |
|
Total |
|
Cost |
|
|
(In thousands) |
First Western |
|
$ |
|
|
|
$ |
|
|
|
$ |
652 |
|
|
$ |
652 |
|
|
$ |
641 |
|
1998 Partnership |
|
|
699 |
|
|
|
1,094 |
|
|
|
321 |
|
|
|
2,114 |
|
|
|
2,013 |
|
1999 Partnership |
|
|
3,795 |
|
|
|
973 |
|
|
|
311 |
|
|
|
5,079 |
|
|
|
4,932 |
|
2000 Joint Venture |
|
|
8,763 |
|
|
|
2,058 |
|
|
|
728 |
|
|
|
11,549 |
|
|
|
10,295 |
|
2001 Joint Venture |
|
|
6,844 |
|
|
|
1,627 |
|
|
|
768 |
|
|
|
9,239 |
|
|
|
8,788 |
|
2002 Joint Venture |
|
|
7,649 |
|
|
|
1,700 |
|
|
|
1,066 |
|
|
|
10,415 |
|
|
|
9,751 |
|
2003 Joint Venture |
|
|
10,817 |
|
|
|
3,316 |
|
|
|
2,543 |
|
|
|
16,676 |
|
|
|
16,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
38,567 |
|
|
$ |
10,768 |
|
|
$ |
6,389 |
|
|
$ |
55,724 |
|
|
$ |
52,468 |
|
|
|
|
|
|
|
|
|
|
|
|
The difference between the estimated fair value and cost of our Retained Interests is reflected in
our consolidated balance sheets as unrealized appreciation of Retained Interests.
14
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following sensitivity analysis of our Retained Interests as of June 30, 2007 highlights the
volatility that results when prepayments, losses and discount rates are different than our
assumptions:
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
Fair |
|
|
Asset |
|
Changed Assumption |
|
Value |
|
|
Change (1) |
|
|
|
(In thousands) |
|
Losses increase by 50 basis points per annum (2) |
|
$ |
52,283 |
|
|
|
($1,116 |
) |
Losses increase by 100 basis points per annum (2) |
|
$ |
51,189 |
|
|
|
($2,210 |
) |
Rate of prepayment increases by 5% per annum (3) |
|
$ |
53,109 |
|
|
|
($ 290 |
) |
Rate of prepayment increases by 10% per annum (3) |
|
$ |
52,759 |
|
|
|
($ 640 |
) |
Discount rates increase by 100 basis points |
|
$ |
52,159 |
|
|
|
($1,240 |
) |
Discount rates increase by 200 basis points |
|
$ |
50,956 |
|
|
|
($2,443 |
) |
|
|
|
(1) |
|
Any depreciation of our Retained Interests is either included in the accompanying statement
of income as a permanent impairment (if there is a reduction in expected future cash flows) or
on our balance sheet in beneficiaries equity as an unrealized loss. |
(2) |
|
If we experience losses in excess of anticipated losses, the effect on our Retained Interests
would first reduce the value of the interest-only strip receivables. To the extent the
interest-only strip receivables could not fully absorb the losses, the effect would then be to
reduce the value of our reserve funds and then the value of our overcollateralization pieces. |
(3) |
|
For example, a 16% assumed rate of prepayment would be increased to 21% or 26% based on
increases of 5% or 10% per annum, respectively. |
These sensitivities are hypothetical and should be used with caution. Values based on changes in
these assumptions generally cannot be extrapolated since the relationship of the change in an
assumption to the change in fair value is not linear. The effect of a variation in a particular
assumption on the fair value of our Retained Interests is calculated without changing any other
assumption. In reality, changes in one factor are not isolated from changes in another which might
magnify or counteract the sensitivities.
In accordance with SFAS No. 140, our consolidated financial statements do not include the assets,
liabilities, partners capital, revenues or expenses of the QSPEs. As a result, at June 30, 2007
and December 31, 2006 our consolidated balance sheets do not include $179.7 million and $207.7
million of assets, respectively, and $130.1 million and $156.5 million of liabilities,
respectively, related to our structured loan sale transactions recorded by the QSPEs. At June 30,
2007, the partners capital of the QSPEs was approximately $49.6 million compared to the value of
the associated Retained Interests of $52.8 million.
The annualized yield on our Retained Interests, which is comprised of the income earned less
permanent impairments, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
Annualized yield |
|
|
12.8 |
% |
|
|
13.9 |
% |
|
|
12.5 |
% |
|
|
13.6 |
% |
During March 2007, PMC Commercial repurchased a loan from the 2003 Joint Venture which had
become charged-off as defined in the transaction documents with an outstanding principal balance
of approximately $3.5 million. We foreclosed on the underlying collateral of the loan, a full
service hospitality property, during May 2007. In June 2007, we sold the hotel property for $4.4
million. The gain at the time of sale was approximately $722,000 of which approximately $578,000
was deferred until full gain recognition criteria are met. We financed the sale of the property
through origination of a loan of approximately $3.5 million with an interest rate of LIBOR plus
2.5% and maturity and amortization periods of 20 years.
15
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11. Other Assets:
Other assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Deferred borrowing costs, net |
|
$ |
962 |
|
|
$ |
1,069 |
|
Investment in Preferred Trust |
|
|
838 |
|
|
|
820 |
|
Interest receivable |
|
|
824 |
|
|
|
1,016 |
|
Prepaid expenses and deposits |
|
|
325 |
|
|
|
614 |
|
Investment in PMCT Plainfield, L.P. |
|
|
90 |
|
|
|
6 |
|
Asset acquired in liquidation, net (1) |
|
|
|
|
|
|
975 |
|
Rent and related receivables |
|
|
|
|
|
|
567 |
|
Other |
|
|
441 |
|
|
|
438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
$ |
3,480 |
|
|
$ |
5,505 |
|
|
|
|
|
|
|
|
|
(1) |
|
During March 2007, we sold an asset acquired in liquidation for $1,425,000 and recognized
a gain of approximately $20,000 and deferred the remaining gain of approximately $446,000. We
financed the sale of the property through origination of a loan of approximately $1,360,000
with an interest rate of 9.0% and maturity and amortization periods of 20 years. |
16
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 12. Debt:
Information on our debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
June 30, 2007 |
|
December 31, 2006 |
|
|
|
|
|
Coupon Rate at |
|
|
Face |
|
Carrying |
|
Face |
|
Carrying |
|
Range of |
|
June 30, |
|
December 31, |
|
|
Amount |
|
Value |
|
Amount |
|
Value |
|
Maturities |
|
2007 |
|
2006 |
|
|
(Dollars in thousands, except footnote) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage notes and
debentures payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures |
|
$ |
8,190 |
|
|
$ |
8,162 |
|
|
$ |
8,190 |
|
|
$ |
8,161 |
|
|
|
2013 to 2015 |
|
|
|
5.90% |
|
|
|
5.90% |
|
Mortgage notes (1) |
|
|
|
|
|
|
|
|
|
|
2,642 |
|
|
|
2,642 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
8.02% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,190 |
|
|
|
8,162 |
|
|
|
10,832 |
|
|
|
10,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior Subordinated Notes |
|
|
27,070 |
|
|
|
27,070 |
|
|
|
27,070 |
|
|
|
27,070 |
|
|
|
2035 |
|
|
|
8.60% |
|
|
|
8.62% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conduit Facility |
|
|
29,143 |
|
|
|
29,143 |
|
|
|
26,968 |
|
|
|
26,968 |
|
|
|
2008 |
|
|
|
6.19% |
|
|
|
6.35% |
|
Revolving credit facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,143 |
|
|
|
29,143 |
|
|
|
26,968 |
|
|
|
26,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred
stock of
subsidiary |
|
|
4,000 |
|
|
|
3,718 |
|
|
|
4,000 |
|
|
|
3,668 |
|
|
|
2009 to 2010 |
|
|
|
4.00% |
|
|
|
4.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt |
|
$ |
68,403 |
|
|
$ |
68,093 |
|
|
$ |
68,870 |
|
|
$ |
68,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Does not include a mortgage note of an unconsolidated subsidiary with a principal balance
of approximately $1.3 million outstanding at June 30, 2007 with a fixed interest rate of 8.5%
due January 1, 2011. |
Principal payments required on our consolidated debt at June 30, 2007 were as follows (face
amount):
|
|
|
|
|
Twelve Months |
|
|
|
Ending June 30, |
|
Total |
|
|
|
(In thousands) |
|
2008 |
|
$ |
29,143 |
|
2009 |
|
|
|
|
2010 |
|
|
4,000 |
|
2011 |
|
|
|
|
2012 |
|
|
|
|
Thereafter |
|
|
35,260 |
|
|
|
|
|
|
$ |
68,403 |
|
|
|
|
Debentures
Debentures represent amounts due to the SBA as a result of borrowings made pursuant to the SBIA.
The debentures have a weighted average cost of funds of approximately 6.0% and require semi-annual
interest only payments.
17
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Mortgage Notes
During April 2007, we repaid a mortgage note with a principal balance of approximately $1.2
million. As a result of the prepayment, we incurred a fee of approximately $166,000. During May
2007, we repaid the remaining mortgage note with a principal balance of approximately $1.4 million.
As a result of the prepayment, we incurred a fee of approximately $286,000.
Junior Subordinated Notes
The Junior Subordinated Notes bear interest at a floating rate which resets on a quarterly basis at
the 90-day LIBOR plus 3.25%. The Junior Subordinated Notes may be redeemed at our option, without
penalty, beginning on March 30, 2010. Interest payments are due on a quarterly basis.
Conduit Facility
Interest payments are payable by PMC Conduit on a monthly basis at a rate approximating LIBOR, plus
0.85% and PMC Conduits principal repayment obligations are expected to be financed through future
securitizations of the loans collateralizing advances under the Conduit Facility. In addition, we
are charged an unused fee equal to 12.5 basis points computed based on the daily available balance.
The Conduit Facility allows for advances based on the amount of eligible collateral sold and has
minimum collateral requirements. At June 30, 2007, PMC Commercial had available approximately
$23.5 million of loans which are conduit eligible loans. The Conduit Facility has covenants, the
most restrictive of which are maximum delinquency ratios for our contributed loans and serviced
portfolio, as defined in the transaction documents. At June 30, 2007, we were in compliance with
the covenants of this facility.
Revolving Credit Facility
PMC Commercial has a revolving credit facility which provides us with credit availability up to $20
million. We are charged interest on the balance outstanding under the revolving credit facility at
our election of either the prime rate of the lender less 75 basis points or 162.5 basis points over
the 30, 60 or 90-day LIBOR. In addition, we are charged an unused fee equal to 37.5 basis points
computed based on our daily available balance. The credit facility requires us to meet certain
covenants, the most restrictive of which (1) provides for an asset coverage test based on our cash
and cash equivalents, loans receivable and Retained Interests as a ratio to our senior debt and (2)
limits our ability to pay out returns of capital as part of our dividends. At June 30, 2007, we
were in compliance with the covenants of this facility.
Redeemable Preferred Stock of Subsidiary
PMCIC has outstanding 40,000 shares of $100 par value, 4% cumulative preferred stock (the 4%
Preferred Stock). The 4% Preferred Stock is held by the SBA pursuant to the SBIA. The 4%
Preferred Stock was issued during 1994 ($2.0 million) and 1995 ($2.0 million) and must be redeemed
at par no later than 15 years from the date of issuance. Dividends of approximately $39,000 and
$79,000 were recognized on the 4% Preferred Stock during the three and six months ended June 30,
2007 and 2006 and are included in interest expense on our consolidated statements of income.
Note 13. Cumulative Preferred Stock of Subsidiary:
PMCIC has outstanding 30,000 shares of $100 par value, 3% cumulative preferred stock (the 3%
Preferred Stock) held by the SBA pursuant to the SBIA. PMCIC is entitled to redeem, in whole or
part, the 3% Preferred Stock by paying the par value ($3.0 million) of these securities plus
dividends accumulated and unpaid on the date of redemption. While the 3% Preferred Stock may be
redeemed, redemption is not mandatory. Dividends of approximately $23,000 and $45,000 were
recognized on the 3% Preferred Stock during the three months and six ended June 30, 2007 and 2006,
respectively, and are reflected in our consolidated statements of income as minority interest.
Note 14. Earnings Per Share:
The computations of basic earnings per common share are based on our weighted average shares
outstanding. The weighted average number of common shares outstanding was approximately 10,756,000
and 10,744,000 for the three months ended June 30, 2007 and 2006, respectively. The weighted
average number of common shares outstanding was approximately
10,755,000 and 10,745,000 for the six months ended June 30, 2007 and 2006, respectively. For
purposes of calculating the dilutive effect of options to purchase common shares, the weighted
average shares outstanding were increased by approximately 6,000 and 9,000 shares during the three
and six months ended June 30, 2007, respectively. During the three
18
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
and six months ended June 30,
2006, no shares were added to the weighted average shares outstanding for purposes of calculating
diluted earnings per share as options were anti-dilutive.
Not included in the computation of diluted earnings per share were outstanding options to purchase
approximately 54,000 and 150,000 common shares during the three months ended June 30, 2007 and
2006, respectively, and options to purchase approximately 34,000 and 150,000 common shares during
the six months ended June 30, 2007 and 2006, respectively, because the options exercise prices
were greater than the average market price of the shares.
Note 15. Dividends Declared:
Dividends declared during 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
Date Paid |
|
Record Date |
|
Per Share |
April 9, 2007 |
|
March 30, 2007 |
|
$ |
0.30 |
|
July 9, 2007 |
|
June 29, 2007 |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
Note 16. Taxable Income:
PMC Commercial has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as
amended (the Code). To qualify as a REIT, PMC Commercial must meet a number of organizational
and operational requirements, including a requirement that we distribute at least 90% of our
taxable income to our shareholders. As a REIT, PMC Commercial generally will not be subject to
corporate level Federal income tax on net income that is currently distributed to shareholders. We
may, however, be subject to certain Federal excise taxes and state and local taxes on our income
and property. If PMC Commercial fails to qualify as a REIT in any taxable year, it will be subject
to Federal income taxes at regular corporate rates (including any applicable alternative minimum
tax) and will not be able to qualify as a REIT for four subsequent taxable years.
In order to meet our prior year taxable income distribution requirements, we may make an election
under the Code to treat a portion of the distributions declared in the current year as
distributions of the prior years taxable income.
PMC Commercial has wholly-owned taxable REIT subsidiaries (TRSs) which are subject to Federal
income taxes: PMCIC, First Western, PMC Funding and PMC Properties. The income generated from the
TRSs is taxed at normal corporate rates. We account for income taxes in accordance with SFAS No.
109, Accounting for Income Taxes which uses the asset and liability method. Deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases.
We calculate our current and deferred tax provisions based on estimates and assumptions that could
differ from the actual results reflected in income tax returns filed during the subsequent year.
Adjustments based on the final tax returns are generally recorded in the period when the returns
are filed.
19
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Income tax provision consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Federal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision |
|
$ |
333 |
|
|
$ |
349 |
|
|
$ |
182 |
|
|
$ |
229 |
|
Deferred provision (benefit) |
|
|
14 |
|
|
|
(15 |
) |
|
|
23 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
Income tax provision |
|
$ |
347 |
|
|
$ |
334 |
|
|
$ |
205 |
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
Included within the current provision is approximately $20,000 in Federal income taxes of PMC
Commercial Trust relating to a gain on the sale of one of our assets acquired in liquidation on
which we made a foreclosure property election which requires PMC Commercial Trust to pay a 35% tax
on the gain.
The provision for income taxes related to the TRSs results in effective tax rates that differ from
Federal statutory rates of 35%. The reconciliation of TRS income tax attributable to net income
computed at Federal statutory rates to income tax expense related to the TRSs was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Income before income taxes for TRSs |
|
$ |
893 |
|
|
$ |
955 |
|
|
$ |
507 |
|
|
$ |
693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Federal income tax provision |
|
$ |
311 |
|
|
$ |
334 |
|
|
$ |
177 |
|
|
$ |
242 |
|
Preferred dividend of subsidiary
recorded as minority interest |
|
|
16 |
|
|
|
16 |
|
|
|
8 |
|
|
|
8 |
|
Other adjustment |
|
|
|
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision related to TRSs |
|
$ |
327 |
|
|
$ |
334 |
|
|
$ |
185 |
|
|
$ |
250 |
|
|
|
|
|
|
|
|
|
|
The FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No. 109, in July 2006. FIN 48 clarifies the
accounting and disclosure for uncertainty in income tax positions, as defined, imposes a
recognition threshold and measurement attributes for the financial statement recognition and
measurement of a tax position taken in a tax return and provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
We were subject to the provisions of FIN 48 as of January 1, 2007, and to the extent applicable,
have analyzed filing positions in all of the federal and state jurisdictions where we are required
to file income tax returns, as well as all open tax years in those jurisdictions. We have
identified our federal tax returns and our state returns in Texas as major tax jurisdictions, as
defined. The periods subject to examination for our federal tax returns and state returns in Texas
are the 2003 through 2006 tax years. We believe that all income tax filing positions and
deductions will be sustained on audit and do not anticipate any adjustments that will result in a
material change to our financial position. Therefore, no reserves for uncertain tax positions have
been recorded pursuant to FIN 48. In addition, we did not record a cumulative effect adjustment
related to the adoption of FIN 48.
In accordance with FIN 48, we have established a policy on classification of penalties and interest
related to audits of our federal and state income tax returns. If incurred, our policy for
recording interest and penalties associated with audits will be to record such items as a component
of income before income tax provision, minority interest and discontinued operations. Penalties,
if incurred, will be recorded in general and administrative expense and interest paid or received
will be recorded in interest expense or interest income, respectively, in the consolidated
statements of income.
20
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 17. Other Income:
Other income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Prepayment fees |
|
$ |
549 |
|
|
$ |
764 |
|
|
$ |
301 |
|
|
$ |
318 |
|
Servicing income (1) |
|
|
406 |
|
|
|
545 |
|
|
|
192 |
|
|
|
265 |
|
Premium income (2) |
|
|
174 |
|
|
|
325 |
|
|
|
14 |
|
|
|
291 |
|
Other loan related income |
|
|
140 |
|
|
|
180 |
|
|
|
77 |
|
|
|
82 |
|
Equity in earnings of unconsolidated subsidiaries |
|
|
50 |
|
|
|
32 |
|
|
|
26 |
|
|
|
16 |
|
Other |
|
|
62 |
|
|
|
17 |
|
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
1,381 |
|
|
$ |
1,863 |
|
|
$ |
640 |
|
|
$ |
972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We earn fees for servicing all loans held by the QSPEs and First Westerns loans sold into
the secondary market. |
(2) |
|
Premium income results from the sale of First Westerns loans pursuant to Secondary Market
Loan Sales. |
21
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 18. Discontinued Operations:
Discontinued operations of our hotel properties (two and 14 hotel properties during the six months
ended June 30, 2007 and 2006, respectively) and assets acquired in liquidation (primarily three and
two limited service hospitality properties during the six months ended June 30, 2007 and 2006,
respectively) consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Hotel and Lease Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating revenues |
|
$ |
507 |
|
|
$ |
1,853 |
|
|
$ |
147 |
|
|
$ |
817 |
|
Lease income base |
|
|
|
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
507 |
|
|
|
2,039 |
|
|
|
147 |
|
|
|
817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotel operating expenses |
|
|
399 |
|
|
|
1,590 |
|
|
|
128 |
|
|
|
633 |
|
Interest expense (1) |
|
|
522 |
|
|
|
229 |
|
|
|
469 |
|
|
|
67 |
|
Depreciation |
|
|
57 |
|
|
|
98 |
|
|
|
15 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
978 |
|
|
|
1,917 |
|
|
|
612 |
|
|
|
742 |
|
|
|
|
|
|
|
|
|
|
Net earnings (losses), hotel and lease operations |
|
|
(471 |
) |
|
|
122 |
|
|
|
(465 |
) |
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Acquired in Liquidation Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
281 |
|
|
|
155 |
|
|
|
214 |
|
|
|
26 |
|
Expenses |
|
|
251 |
|
|
|
186 |
|
|
|
219 |
|
|
|
21 |
|
|
|
|
|
|
|
|
|
|
Net earnings (losses), assets acquired in
liquidation operations |
|
|
30 |
|
|
|
(31 |
) |
|
|
(5 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net earnings (losses) |
|
|
(441 |
) |
|
|
91 |
|
|
|
(470 |
) |
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on sales of real estate |
|
|
1,279 |
|
|
|
2,019 |
|
|
|
1,252 |
|
|
|
142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment losses |
|
|
(233 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations |
|
$ |
605 |
|
|
$ |
2,016 |
|
|
$ |
782 |
|
|
$ |
201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents interest expense and fees charged on the mortgages payable related to our hotel
properties included in discontinued operations. No additional interest expense was allocated
to discontinued operations. Interest expense for the three and six months ended June 30, 2007
includes penalties of approximately $452,000 for the prepayment of two mortgage notes. |
22
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 19. Supplemental Disclosure of Cash Flow Information:
Information regarding our non-cash activities was as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Non-cash investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification from loans receivable
to assets acquired
in liquidation |
|
$ |
4,917 |
|
|
$ |
3,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable originated in
connection with sales of
assets acquired in liquidation |
|
$ |
6,283 |
|
|
$ |
2,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans receivable originated in
connection with sales of
hotel properties |
|
$ |
4,380 |
|
|
$ |
17,084 |
|
|
|
|
|
|
Note 20. Commitments and Contingencies:
Loan Commitments
Commitments to extend credit are agreements to lend to a customer provided the terms established in
the contract are met. Our outstanding loan commitments and approvals to fund new loans were
approximately $14.4 million at June 30, 2007, of
which approximately $2.9 million were for prime-based loans to be originated by First Western, the
government portion of which (approximately 75% of each individual loan) will be sold pursuant to
Secondary Market Loan Sales.
At June 30, 2007, the majority of our commitments and approvals were for variable-rate loans based
on the prime rate or the 90-day LIBOR at spreads over the prime rate generally ranging from 1.50%
to 2.75% and over LIBOR generally ranging from 3.00% to 4.00%. The weighted average interest rate
on our loan commitments and approvals at June 30, 2007 was approximately 8.9%. Commitments
generally have fixed expiration dates and require payment of a fee to us. Since some commitments
are expected to expire without being drawn upon, total commitment amounts do not necessarily
represent future cash requirements.
Operating Lease
We lease office space in Dallas, Texas under a lease which expires in October 2011. Future minimum
lease payments under this lease are as follows:
|
|
|
|
|
Twelve Months |
|
|
|
Ending |
|
|
|
June 30, |
|
Total |
|
|
|
(In thousands) |
|
2008 |
|
$ |
185 |
|
2009 |
|
|
197 |
|
2010 |
|
|
208 |
|
2011 |
|
|
220 |
|
2012 |
|
|
75 |
|
|
|
|
|
|
$ |
885 |
|
|
|
|
23
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Employment Agreements
We have employment agreements with our executive officers for three-year terms expiring June 30,
2010. In the event of a change in responsibilities, as defined, during the employment period, the
agreements provide for severance compensation to the executive officer in an amount equal to 2.99
times the average of the last three years annual compensation paid to the executive officer.
Structured Loan Sale Transactions
The transaction documents of the QSPEs contain provisions (the Credit Enhancement Provisions)
that govern the assets and the inflow and outflow of funds of the QSPEs formed as part of the
structured loan sale transactions. The Credit Enhancement Provisions include specified limits on
the delinquency, default and loss rates on the loans receivable included in each QSPE. If, at any
measurement date, the delinquency, default or loss rate with respect to any QSPE were to exceed the
specified limits, the Credit Enhancement Provisions would automatically increase the level of
credit enhancement requirements for that QSPE. During the period in which the specified
delinquency, default or loss rate was exceeded, excess cash flow from the QSPE, if any, which would
otherwise be distributable to us, would be used to fund the increased credit enhancement levels up
to the principal amount of such loans and would delay or reduce our distribution. In general,
there can be no assurance that amounts deferred under Credit Enhancement Provisions would be
received in future periods or that future deferrals or losses will not occur.
Environmental
PMC Funding has a recorded liability of approximately $300,000 at June 30, 2007 related to a loan
with collateral that has environmental remediation obligations which are the primary responsibility
of our borrower. Under purchase accounting, the liability was assumed and the loan was acquired by
PMC Commercial in the merger with PMC Capital, Inc. The sale was financed by PMC Capital, Inc.
through a loan with an outstanding principal balance of approximately $560,000 at June 30, 2007
which is in default. As a result, we filed a lawsuit in the State of Georgia. The borrower has
filed a counterclaim
alleging, among other things, breach of contract and non-default under the loan documents. We do
not believe there is any merit to the counterclaim and intend to vigorously pursue all remedies
available to us under the law.
During 2005, we were informed by the Georgia Department of Natural Resources that the remediation
plan for the property required revision. While our borrower has the primary responsibility for the
environmental remediation, to the extent we were forced to reacquire the property, we currently
believe that the estimated fair value of the collateral underlying the loan exceeds the current
outstanding principal balance on the loan. At the present time, we have been unable to quantify
additional costs, if any, of the potential changes in remediation methods requested by Georgia;
however, these costs could be material and may exceed the value of the collateral net of the
recorded liability and the current outstanding principal balance of the loan.
Litigation
We have significant outstanding claims against Arlington Hospitality, Inc.s and its subsidiary
Arlington Inns, Inc.s (together Arlington) bankruptcy estates. Arlington objected to our claims
and initiated a complaint in the bankruptcy seeking, among other things, the return of payments
Arlington made pursuant to the property leases and the Master Lease Agreement.
While we remain confident a substantial portion of our claims would be allowed and the claims
against us would be disallowed, due to the exorbitant cost of defense coupled with the likelihood
of reduced available assets in the debtors estates to pay claims, we have executed an agreement
with Arlington to settle our claims against Arlington and Arlingtons claims against us. The
settlement provides that Arlington will dismiss its claims seeking the return of certain payments
made pursuant to the property leases and Master Lease Agreement, and substantially reduces our
claims against the Arlington estates. The settlement further provides for mutual releases among
the parties. The Bankruptcy Court has approved the settlement. Accordingly, there are no
remaining assets or liabilities recorded in the accompanying consolidated financial statements
related to this matter. However, the settlement will only become final upon the Bankruptcy Courts
approval of Arlingtons reorganization plan. The plan has not yet been filed.
In the normal course of business we are periodically party to certain legal actions and proceedings
involving matters that are generally incidental to our business (i.e., collection of loans
receivable). In managements opinion, the resolution of these legal actions and proceedings will
not have a material adverse effect on our consolidated financial statements.
24
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 21. Business Segments:
Operating results and other financial data are presented for our principal business segments.
These segments are categorized by line of business which also corresponds to how they are operated.
The segments include (1) the Lending Division, which originates loans to small businesses
primarily in the hospitality industry and (2) the Property Division which operated our hotel
properties. With respect to the operations of our lending division, we do not differentiate
between subsidiaries or loan programs.
Business segment data for the three months ended June 30, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
Lending |
|
Property |
|
|
|
|
|
Lending |
|
Property |
|
|
Total |
|
Division |
|
Division |
|
Total |
|
Division |
|
Division |
|
|
(In thousands) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income loans and other income |
|
$ |
4,838 |
|
|
$ |
4,831 |
|
|
$ |
7 |
|
|
$ |
4,901 |
|
|
$ |
4,901 |
|
|
$ |
|
|
Hotel property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
169 |
|
|
|
|
|
|
|
169 |
|
Income from Retained Interests |
|
|
2,077 |
|
|
|
2,077 |
|
|
|
|
|
|
|
2,682 |
|
|
|
2,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,915 |
|
|
|
6,908 |
|
|
|
7 |
|
|
|
7,752 |
|
|
|
7,583 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
1,420 |
|
|
|
1,420 |
|
|
|
|
|
|
|
1,379 |
|
|
|
1,351 |
|
|
|
28 |
|
Salaries and related benefits (1) |
|
|
1,214 |
|
|
|
1,178 |
|
|
|
36 |
|
|
|
1,213 |
|
|
|
1,092 |
|
|
|
121 |
|
Hotel property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
|
|
|
|
140 |
|
General and administrative |
|
|
580 |
|
|
|
564 |
|
|
|
16 |
|
|
|
635 |
|
|
|
549 |
|
|
|
86 |
|
Permanent impairments on Retained Interests |
|
|
99 |
|
|
|
99 |
|
|
|
|
|
|
|
536 |
|
|
|
536 |
|
|
|
|
|
Provision for losses on rent and related receivables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125 |
|
|
|
|
|
|
|
125 |
|
Provision for (reduction of) loan losses, net |
|
|
(13 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
2 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,300 |
|
|
|
3,248 |
|
|
|
52 |
|
|
|
4,030 |
|
|
|
3,530 |
|
|
|
500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision, minority
interest and discontinued operations |
|
|
3,615 |
|
|
|
3,660 |
|
|
|
(45 |
) |
|
|
3,722 |
|
|
|
4,053 |
|
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
|
(205 |
) |
|
|
(191 |
) |
|
|
(14 |
) |
|
|
(250 |
) |
|
|
(261 |
) |
|
|
11 |
|
Minority interest (preferred stock dividend of subsidiary) |
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
3,387 |
|
|
|
3,446 |
|
|
|
(59 |
) |
|
|
3,449 |
|
|
|
3,769 |
|
|
|
(320 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on sales of real estate |
|
|
1,252 |
|
|
|
167 |
|
|
|
1,085 |
|
|
|
142 |
|
|
|
142 |
|
|
|
|
|
Impairment losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
(21 |
) |
|
|
|
|
Net earnings (losses) |
|
|
(470 |
) |
|
|
(5 |
) |
|
|
(465 |
) |
|
|
80 |
|
|
|
5 |
|
|
|
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
4,169 |
|
|
$ |
3,608 |
|
|
$ |
561 |
|
|
$ |
3,650 |
|
|
$ |
3,895 |
|
|
$ |
(245 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Salaries and related benefits were allocated to the Property Division based on managements estimate of time spent for oversight. |
25
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Business segment data for the six months ended June 30, 2007 and 2006 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
Lending |
|
Property |
|
|
|
|
|
Lending |
|
Property |
|
|
Total |
|
Division |
|
Division |
|
Total |
|
Division |
|
Division |
|
|
(In thousands) |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income loans and other income |
|
$ |
9,635 |
|
|
$ |
9,621 |
|
|
$ |
14 |
|
|
$ |
9,474 |
|
|
$ |
9,457 |
|
|
$ |
17 |
|
Hotel property revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275 |
|
|
|
|
|
|
|
275 |
|
Income from Retained Interests |
|
|
3,978 |
|
|
|
3,978 |
|
|
|
|
|
|
|
4,935 |
|
|
|
4,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
13,613 |
|
|
|
13,599 |
|
|
|
14 |
|
|
|
14,684 |
|
|
|
14,392 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
2,745 |
|
|
|
2,745 |
|
|
|
|
|
|
|
2,784 |
|
|
|
2,727 |
|
|
|
57 |
|
Salaries and related benefits (1) |
|
|
2,381 |
|
|
|
2,310 |
|
|
|
71 |
|
|
|
2,273 |
|
|
|
2,046 |
|
|
|
227 |
|
Hotel property expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
254 |
|
General and administrative |
|
|
1,296 |
|
|
|
1,246 |
|
|
|
50 |
|
|
|
1,257 |
|
|
|
1,065 |
|
|
|
192 |
|
Permanent impairments on Retained Interests |
|
|
123 |
|
|
|
123 |
|
|
|
|
|
|
|
584 |
|
|
|
584 |
|
|
|
|
|
Provision for losses on rent and related receivables |
|
|
239 |
|
|
|
|
|
|
|
239 |
|
|
|
425 |
|
|
|
|
|
|
|
425 |
|
Provision for loan losses, net |
|
|
52 |
|
|
|
52 |
|
|
|
|
|
|
|
53 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,836 |
|
|
|
6,476 |
|
|
|
360 |
|
|
|
7,630 |
|
|
|
6,475 |
|
|
|
1,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax provision, minority
interest and discontinued operations |
|
|
6,777 |
|
|
|
7,123 |
|
|
|
(346 |
) |
|
|
7,054 |
|
|
|
7,917 |
|
|
|
(863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (provision) |
|
|
(347 |
) |
|
|
(345 |
) |
|
|
(2 |
) |
|
|
(334 |
) |
|
|
(345 |
) |
|
|
11 |
|
Minority interest (preferred stock dividend of subsidiary) |
|
|
(45 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
(45 |
) |
|
|
(45 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
6,385 |
|
|
|
6,733 |
|
|
|
(348 |
) |
|
|
6,675 |
|
|
|
7,527 |
|
|
|
(852 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains on sales of real estate |
|
|
1,279 |
|
|
|
188 |
|
|
|
1,091 |
|
|
|
2,019 |
|
|
|
164 |
|
|
|
1,855 |
|
Impairment losses |
|
|
(233 |
) |
|
|
(233 |
) |
|
|
|
|
|
|
(94 |
) |
|
|
(51 |
) |
|
|
(43 |
) |
Net earnings (losses) |
|
|
(441 |
) |
|
|
30 |
|
|
|
(471 |
) |
|
|
91 |
|
|
|
(31 |
) |
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,990 |
|
|
$ |
6,718 |
|
|
$ |
272 |
|
|
$ |
8,691 |
|
|
$ |
7,609 |
|
|
$ |
1,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Salaries and related benefits were allocated to the Property Division based on managements estimate of time spent for oversight. |
Total assets at June 30, 2007 were allocated approximately $239.8 million to the Lending
Division and $0.2 million to the Property Division.
26
PART I
Financial Information
ITEM 2.
Managements Discussion and Analysis of Financial Condition
and Results of Operations
This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are
intended to be covered by the safe harbors created thereby. Such forward-looking statements can be
identified by the use of forward-looking terminology such as may, will, expect, intend,
believe, anticipate, estimate, or continue, or the negative thereof or other variations or
similar words or phrases. These statements include the plans and objectives of management for
future operations, including, but not limited to, plans and objectives relating to future growth of
the loan portfolio and availability of funds. The forward-looking statements included herein are
based on current expectations and there can be no assurance that these expectations will be
attained. For a description of certain factors that could cause our future results to differ
materially from those expressed in any such forward-looking statement, see Executive Summary and
Current Operating Overview and Significant Economic Factors. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which are difficult or impossible to
predict accurately and many of which are beyond our control. Although we believe that the
assumptions underlying the forward-looking statements are reasonable, any of the assumptions could
be inaccurate and, therefore, there can be no assurance that the forward-looking statements
included in this Form 10-Q will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by us or any other person that our objectives and plans
will be achieved. Readers are cautioned not to place undue reliance on forward-looking statements.
Forward-looking statements speak only as of the date they are made. We do not undertake to update
them to reflect changes that occur after the date they are made.
The following discussion of our financial condition at June 30, 2007 and results of operations
for the three and six months ended June 30, 2007 and 2006 should be read in conjunction with our
Annual Report on Form 10-K for the year ended December 31, 2006.
BUSINESS
PMC Commercial Trust (PMC Commercial and, together with its wholly-owned subsidiaries, the
Company, our, us or we) is a real estate investment trust (REIT). Our common shares are
traded on the American Stock Exchange under the symbol PCC. We are primarily a commercial lender
that originates loans to small businesses that are principally collateralized by first liens on the
real estate of the related business. Our loans are primarily to borrowers in the limited service
hospitality industry. We also originate loans on commercial real estate to borrowers primarily in
the service, retail, multi-family and manufacturing industries. We then sell certain of our loans
receivable through privately-placed structured loan transactions. Historically, we have retained
residual interests in all loans receivable sold through our subordinate financial interest in the
related qualifying special purpose entities (QSPEs).
Our ability to generate interest income, as well as other revenue sources, is dependent upon
economic, regulatory and competitive factors that influence interest rates and loan originations,
and our ability to secure financing for our investment activities. The amount of income earned
will vary based on the volume of loans funded, the timing and amount of financings, the volume of
loans receivable which prepay and the resultant applicable prepayment fees, if any, the mix of
loans (construction vs. non-construction), the rate on loans originated as well as the general
level of interest rates. For a more detailed description of the risks affecting our financial
condition and results of operations, see Risk Factors in Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2006.
We seek to maximize shareholder value through long-term growth in dividends paid to our
shareholders. As a REIT, we must annually distribute at least 90% of our REIT taxable income to
our shareholders.
27
EXECUTIVE SUMMARY
During the second quarter of 2007 we originated $18.6 million of loans, bringing the
year-to-date total to $34.0 million. The market segment for limited service hospitality loans
continues to be extremely competitive and the yield curve still favors fixed-rate lenders.
Therefore, as a result, we currently anticipate that our 2007 originations will be at the lower end
of our previously announced range of $60 million to $75 million.
Lenders to the limited service hospitality market, where we have traditionally concentrated,
have become more aggressive in the last three years as this segment has become more mainstream.
Banks have expanded their position in this market through the use of deposits to fund fixed-rate
mini-perm loans with 5-year maturities and 15 to 25-year amortization periods. In addition,
conduit lending programs sponsored by large investment banks have been more aggressive in lending
to the limited service hospitality market with maturities of ten years or greater and 20 to 30-year
amortization periods. The result of this competition has been a narrowing of availability of new
loans to non-bank lenders like ourselves and a reduced spread on the loans that non-bank lenders
like ourselves are able to make.
The competitive nature of this market has also resulted in a significant increase in the
amount of prepayments of our serviced loans. We had greater than $91 million of prepayments in 2006
and over $42 million in the first half of 2007. As shown in the table below, the result has been a
reduction in our total serviced portfolio outstanding from its peak of approximately $498 million
during 2004 to $369 million at June 30, 2007. We believe that we will continue to see high levels
of prepayment activity during the remainder of 2007. Information on our serviced portfolio is
provided since we retain a residual interest in the cash flows from our sold loans. Therefore, the
performance of these loans impacts our profitability and our cash available for dividend
distributions.
Information on our serviced portfolio, including prepayment trends, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
(Dollars in thousands) |
Serviced portfolio |
|
$ |
368,947 |
|
|
$ |
399,214 |
|
|
$ |
452,035 |
|
|
$ |
471,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan originations |
|
$ |
34,033 |
|
|
$ |
71,530 |
|
|
$ |
58,852 |
|
|
$ |
53,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments |
|
$ |
42,367 |
|
|
$ |
91,710 |
|
|
$ |
41,049 |
|
|
$ |
15,931 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Prepayments (1) |
|
|
21.2% |
|
|
|
20.3% |
|
|
|
8.7% |
|
|
|
3.2% |
|
|
|
|
(1) |
|
Represents prepayments as a percentage of serviced portfolio outstanding as of the
beginning of the year. For the six months ended June 30, 2007, represents annualized
prepayments as a percentage of serviced portfolio outstanding as of the beginning of the
year. |
As a result of these loan origination challenges and our goal to expand our portfolio, we are
exploring additional investment and business opportunities. We will attempt to identify and invest
in opportunities in the real estate market that are natural additions to supplement our core
business. We are evaluating investments including, but not limited to, development of hotel
properties, ownership of properties including office buildings, retail centers, office warehouses,
convenience and service stations and restaurants, joint venture ownership of hotels and
acquisitions of real estate related businesses. We are also evaluating investment opportunities in
the banking industry which may provide alternative and/or lower costs of funds as well as
alternative lending products. In order to finance these investments, we anticipate utilizing our
credit facilities. While we are using resources to evaluate these opportunities, there can be no
assurance that we will ultimately invest in any of these alternatives. In addition, some of these
alternatives may initially generate negative cash flow and could impact our ability to maintain our
dividend payments at their current levels. However, we anticipate, as a result of earnings from
our core business and gains generated on our property sales during 2006 and 2007, that we will
maintain our current regular quarterly dividend of $0.30 per share through the end of 2007.
28
In addition, we have commenced loan brokerage services for those origination opportunities
which are either larger than we typically originate or that are priced below our best available
interest rate. We anticipate generating fees of up to 1% of each loan placed.
We have also expanded our marketing initiatives for the Small Business Administrations
(SBA) 7(a) Guaranteed Loan Program
(SBA
7(a) Program). We anticipate that as a result of First
Western SBLC, Inc.s (First Western) preferred lender status and expanded marketing initiatives,
our originations under the SBA 7(a) Program will increase; however, to date we have not realized
any increase in origination volume or commitments since our marketing efforts generally take time
to provide benefits. In addition, the typical size of a SBA 7(a) Program loan is smaller than our
other lending programs.
We are currently offering fixed-rate loans to borrowers at approximately 2.5% over 5-year swap
rates and anticipate the maximum amount of fixed-rate loans we will originate under this program to
be $30.0 million. If necessary, we will utilize the swap market or interest rate caps to lock in a
fixed cost of funds so that we can offer this more competitive fixed-rate product. While we
anticipate hedging our cost of funds, it is expected that any hedging programs will be limited due
to the interest rate risk if unanticipated repayment of these fixed-rate loans occurs.
The yield curve combined with increased competition has caused margin compression (i.e., the
margins we currently receive between the interest rate we charge our borrowers and the interest
rate we are charged by our lenders have compressed). Whereas historically we originated
variable-rate loans at 3.5% to 4.5% over LIBOR, currently we are offering rates between 3.0% to
4.0% over LIBOR. In addition, as a result of our weighted average spread over LIBOR being reduced
on our variable-rate loan originations, we anticipate that the spread between the interest rates
charged to our borrowers and the cost of funds may be less than the spread of 2.77% on our
variable-rate securitization completed during 2003. The net interest margin for our leveraged
portfolio is dependent upon the difference between the cost of our borrowed funds and the rate at
which we invest these funds (the net interest spread). In general, a significant reduction in
net interest spread may have a material adverse effect on our results of operations and may cause
us to re-evaluate our lending focus. The margin compression lowers our profitability and may have
an impact on our ability to maintain our dividend at the current amount subsequent to 2007.
We have sold all of our hotel properties and assets acquired in liquidation. In addition,
during June 2007, we executed a settlement agreement with Arlington Hospitality, Inc. and its
subsidiary Arlington Inns, Inc. (together Arlington) that substantially eliminates our
involvement with Arlingtons bankruptcy estate. As a result, management is now able to focus on
our core business including new investment opportunities.
CURRENT OPERATING OVERVIEW AND SIGNIFICANT ECONOMIC FACTORS
The following provides an update of our current operating overview and significant economic
factors included in our Annual Report on Form 10-K for the year ended December 31, 2006 that may
have an impact on our financial condition and results of operations. The factors described below
could impact the volume of loan originations, the income we earn on our assets, our ability to
complete a securitization, the performance of our loans and/or the performance of the QSPEs.
Loans originated during the first half of 2007 were approximately $34.0 million (including
approximately $3.5 million repurchased from one of our securitizations and approximately $10.7
million from the sale of hotel properties and assets acquired in liquidation) which is comparable
to the $31.2 million of loans we originated during the same period in 2006 (including approximately
$19.8 million from sales of hotel properties and assets acquired in liquidation). We currently
anticipate loan originations to be between $25 million and $35 million during the remaining six
months of 2007. Our average loan commitment, excluding SBA 7(a) Program loans, is approximately
$1.6 million per loan. Accordingly, a change in a few loans funding in periods other than expected
or a few loan commitments being cancelled or approved would have a material impact on our
estimates. At June 30, 2007, December 31, 2006 and June 30, 2006, our outstanding commitments to
fund new loans were approximately $14.4 million, $32.6 million and $33.1 million, respectively.
The majority of our current commitments are for variable-rate loans which provide an interest rate
match with our present sources of funds. We believe that our LIBOR-based loan program (1) allows
us to compete more effectively with the diminishing market share of variable-rate products, (2)
provides us with a more attractive securitization product and (3) provides us with a net interest
spread that is less susceptible to interest rate risk than fixed-rate loan programs.
29
PORTFOLIO INFORMATION
General
Loans originated and principal repayments on our retained loans receivable were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In millions) |
Loan Originations: |
|
|
|
|
|
|
|
|
Commercial mortgage loans |
|
$ |
20.0 |
|
|
$ |
5.8 |
|
SBA 7(a) Loan Program loans |
|
|
1.7 |
|
|
|
5.4 |
|
Loans originated in connection with sale of
assets acquired in liquidation and hotel properties |
|
|
10.7 |
|
|
|
19.8 |
|
SBA 504 program loans (1) |
|
|
1.6 |
|
|
|
0.2 |
|
|
|
|
|
|
Total loans originated |
|
$ |
34.0 |
|
|
$ |
31.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Repayments: |
|
|
|
|
|
|
|
|
Prepayments |
|
$ |
18.3 |
|
|
$ |
18.1 |
|
Proceeds from the sale of SBA 7(a) guaranteed loans |
|
|
2.3 |
|
|
|
4.2 |
|
Scheduled principal payments |
|
|
2.1 |
|
|
|
3.0 |
|
Balloon maturities of SBA 504 program loans |
|
|
6.7 |
|
|
|
1.3 |
|
|
|
|
|
|
Total principal repayments |
|
$ |
29.4 |
|
|
$ |
26.6 |
|
|
|
|
|
|
|
|
|
(1) |
|
Represents second mortgages obtained through the SBA 504 Program which are repaid by
certified development companies. |
In addition to our retained portfolio, at June 30, 2007, we service approximately $198.1
million of aggregate principal balance remaining on loans that were sold in structured loan sale
transactions and secondary market loan sales. Since we retain a residual interest in the cash
flows from these sold loans, the performance of these loans impacts our profitability and our cash
available for dividend distributions. Therefore, we provide information on both our loans
receivable retained (the Retained Portfolio) and combined with sold loans that we service (the
Aggregate Portfolio). The weighted average contractual interest rate on our Aggregate Portfolio
was 9.4%, 9.5% and 9.3% at June 30, 2007, December 31, 2006 and June 30, 2006, respectively.
Information on our Retained Portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2006 |
Weighted average contractual interest rate |
|
|
9.2 |
% |
|
|
9.4 |
% |
|
|
9.3 |
% |
|
|
|
|
|
|
|
|
|
Annualized average yield (1) (2) |
|
|
10.0 |
% |
|
|
11.0 |
% |
|
|
10.1 |
% |
|
|
|
(1) |
|
In addition to interest income, the yield includes all fees earned and is adjusted
by the provision for loan losses, net. |
(2) |
|
For the six month periods ended June 30, 2006 and 2007 and for the year ended December
31, 2006. |
The LIBOR and the prime rate used in determining interest rates to be charged to our borrowers
during the third quarter of 2007 (set on July 1, 2007) is 5.36% and 8.25%, respectively, while the
LIBOR and prime rate charged during the second quarter of 2007 (set on April 1, 2007) was 5.35% and
8.25%, respectively. To the extent LIBOR or the prime rate changes, we will have changes in
interest income from our variable-rate loans receivable.
30
Additional information on our retained loans receivable, net, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007 |
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
Loans receivable, net |
|
Interest |
|
Loans receivable, net |
|
Interest |
|
|
Amount |
|
% |
|
Rate |
|
Amount |
|
% |
|
Rate |
|
|
(Dollars in thousands) |
Variable-rate LIBOR |
|
$ |
132,138 |
|
|
|
78.2 |
% |
|
|
9.2 |
% |
|
$ |
127,931 |
|
|
|
75.6 |
% |
|
|
9.4 |
% |
Fixed-rate |
|
|
21,096 |
|
|
|
12.5 |
% |
|
|
8.7 |
% |
|
|
23,419 |
|
|
|
13.9 |
% |
|
|
8.8 |
% |
Variable-rate prime |
|
|
15,786 |
|
|
|
9.3 |
% |
|
|
10.1 |
% |
|
|
17,831 |
|
|
|
10.5 |
% |
|
|
10.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
169,020 |
|
|
|
100.0 |
% |
|
|
9.2 |
% |
|
$ |
169,181 |
|
|
|
100.0 |
% |
|
|
9.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our loans receivable were approximately 93% concentrated in the hospitality industry at
June 30, 2007. Any economic factors that negatively impact the hospitality industry could have a
material adverse effect on our financial condition or results of operations.
Impaired Loans
Senior management closely monitors our impaired loans which are classified into two
categories: Problem Loans and Special Mention Loans (together, Impaired Loans). Our Problem
Loans are loans which are not complying with their contractual terms, the collection of the balance
of the principal is considered unlikely and on which the fair value of the collateral is less than
the remaining unamortized principal balance. Our Special Mention Loans are those loans that are
either not complying or had previously not complied with their contractual terms but, in general,
we expect a full recovery of the principal balance through either collection efforts or liquidation
of collateral.
31
Historically, we have not had a significant amount of Impaired Loans or delinquent loans nor
have we had a significant amount of charged-off loans. Our Impaired Loans were as follows
(balances represent our investment in the loans prior to loan loss reserves and deferred commitment
fees):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Problem Loans: |
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
618 |
|
|
$ |
1,887 |
|
Sold loans of QSPEs (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
618 |
|
|
$ |
1,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special Mention Loans: |
|
|
|
|
|
|
|
|
Loans receivable |
|
$ |
30 |
|
|
$ |
32 |
|
Sold loans of QSPEs (1) |
|
|
1,024 |
|
|
|
3,496 |
|
|
|
|
|
|
|
|
$ |
1,054 |
|
|
$ |
3,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Problem Loans: |
|
|
|
|
|
|
|
|
Loans receivable |
|
|
0.3% |
|
|
|
1.1% |
|
Sold loans of QSPEs (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Special Mention Loans: |
|
|
|
|
|
|
|
|
Loans receivable |
|
|
|
|
|
|
|
|
Sold loans of QSPEs (1) |
|
|
0.6% |
|
|
|
1.9% |
|
|
|
|
(1) |
|
We do not include the remaining outstanding principal of serviced loans pertaining to
the guaranteed portion of loans sold into the secondary market since the SBA has
guaranteed payment of principal on these loans. |
At June 30, 2007 and December 31, 2006, we had reserves of approximately $49,000 and $63,000,
respectively, against loans receivable that we have deemed to be Impaired Loans. Our provision
for loan losses (excluding reductions of loan losses) as a percentage of our weighted average
outstanding loans receivable was 0.04% and 0.06% during the six months ended June 30, 2007 and
2006, respectively. To the extent one or several of our loans experience significant operating
difficulties and we are forced to liquidate the loans, future losses may be substantial.
RESULTS OF OPERATIONS
Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
Overview
Income from continuing operations decreased to $6,385,000 ($0.59 per share) during the six
months ended June 30, 2007 from $6,675,000 ($0.62 per share) during the six months ended June 30,
2006. As described in more detail below, significant changes when comparing the periods were:
|
|
|
A decrease in income from Retained Interests of $957,000 due to (1) a
decrease in the weighted average balance of our Retained Interests outstanding due mainly
to prepayments, (2) a reduction in unanticipated prepayment fees and (3) a reduction in
the weighted average accretion rate; |
|
|
|
A decrease in other income of $482,000 due primarily to decreased prepayment
fee income and premium income; |
|
|
|
An increase in interest income of $643,000 due primarily to increases in
variable interest rates and our weighted average loans outstanding; and |
|
|
|
A decrease in non-cash losses of $648,000, including provision for loss on
rent and related receivables, permanent impairments on Retained Interests and loan
losses. |
32
Net income decreased to $6,990,000 ($0.65 per share) during the six months ended June 30, 2007
from $8,691,000 ($0.81 per share) during the six months ended June 30, 2006. In addition to the
changes in income from continuing operations described above, net income decreased due to net gains
on sales of real estate included in discontinued operations of $2,019,000 during the six months
ended June 30, 2006 compared to $1,279,000 during the six months ended June 30, 2007.
More detailed comparative information on the composition of and changes in our revenues and
expenses is provided below.
Revenues
Interest income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Interest income loans |
|
$ |
7,780 |
|
|
$ |
7,295 |
|
Accretion of loan fees and discounts |
|
|
243 |
|
|
|
208 |
|
Interest income idle funds |
|
|
231 |
|
|
|
108 |
|
|
|
|
|
|
|
|
$ |
8,254 |
|
|
$ |
7,611 |
|
|
|
|
|
|
The increase in interest income loans was primarily attributable to (1) an increase in our
weighted average loans receivable outstanding of $8.8 million (6%) to $166.3 million during the six
months ended June 30, 2007 from $157.5 million during the six months ended June 30, 2006 and (2) an
increase in variable interest rates. The increase in our idle funds interest income is primarily
due to cash and cash equivalents of our Small Business Investment Companies (SBICs). These funds
are restricted and can only be used for commitments of the SBICs.
Income from Retained Interests decreased $957,000 primarily due to (1) a decrease in the
weighted average balance outstanding of $5.1 million to $54.7 million during the six months ended
June 30, 2007 compared to $59.8 million during the six months ended June 30, 2006, (2) a reduction
in unanticipated prepayment fees of $195,000 and (3) a reduction in the weighted average accretion
rate from 13.8% during the six months ended June 30, 2006 to 12.4% during the six months ended June
30, 2007 mainly due to prepayments and reductions in the cost basis of our interest-only strip
receivables. The yield on our Retained Interests, which is comprised of income earned less
permanent impairments, decreased to 12.8% during the six months ended June 30, 2007 from 13.9%
during the six months ended June 30, 2006.
Other income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Prepayment fees |
|
$ |
549 |
|
|
$ |
764 |
|
Servicing income |
|
|
406 |
|
|
|
545 |
|
Premium income |
|
|
174 |
|
|
|
325 |
|
Other loan related income |
|
|
140 |
|
|
|
180 |
|
Equity in earnings of unconsolidated subsidiaries |
|
|
50 |
|
|
|
32 |
|
Other |
|
|
62 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
1,381 |
|
|
$ |
1,863 |
|
|
|
|
|
|
33
While prepayment activity has remained at relatively high levels and we believe that we
will continue to see prepayment activity at these higher levels during the remainder of 2007, our
prepayment fees have decreased. Prepayment fees on our variable-rate loans are generally less per
loan than fixed-rate loans. As we are primarily originating variable-rate loans, we anticipate, as
the outstanding principal balance of our fixed-rate loans declines, that prepayment fees will
decline. In addition, during the last two years we have originated, and may continue to originate,
variable-rate loans with no prepayment fees or reduced prepayment fees. However, prepayment fee
income is dependent upon a number of factors and is not generally predictable.
We earn fees for servicing all loans held by the QSPEs and on loans sold into the secondary
market by First Western. As these fees are based on the principal balances of sold loans
outstanding, they will decrease over time as scheduled principal payments and prepayments occur.
Premium income results from the sale of First Westerns loans into the secondary market. We
sold six and nine loans and collected cash premiums of approximately $215,000 and $400,000 during
the six months ended June 30, 2007 and 2006, respectively. To the extent we are able to increase
our volume of loans originated by First Western, there should be a corresponding increase in
premiums received.
Interest Expense
Interest expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Junior subordinated notes |
|
$ |
1,185 |
|
|
$ |
1,102 |
|
Conduit facility |
|
|
1,111 |
|
|
|
779 |
|
Debentures payable |
|
|
246 |
|
|
|
482 |
|
Revolving credit facility |
|
|
59 |
|
|
|
76 |
|
Mortgages on hotel properties |
|
|
|
|
|
|
57 |
|
Structured notes |
|
|
|
|
|
|
137 |
|
Other |
|
|
144 |
|
|
|
151 |
|
|
|
|
|
|
|
|
$ |
2,745 |
|
|
$ |
2,784 |
|
|
|
|
|
|
The weighted average cost of our funds at June 30, 2007 was 7.0% compared to 7.2% at
June 30, 2006. Interest on the junior subordinated notes increased due to increases in LIBOR.
Interest on the conduit facility increased primarily as a result of increased utilization of the
facility and increases in variable interest rates. Our weighted average borrowings outstanding on
our conduit facility increased to $30.7 million during the six months ended June 30, 2007 compared
to $21.0 million during the six months ended June 30, 2006.
The reduction of interest expense on our debentures payable was a result of the prepayment,
without penalty, of $7,310,000 of fixed-rate SBA debentures with an interest rate of approximately
8.5% during the third quarter of 2006. In addition, interest expense was reduced since (1) the
remaining balance outstanding on our structured notes was repaid on December 1, 2006 and (2) we
repaid our remaining two mortgage notes with a principal balance of approximately $2.6 million
during the second quarter of 2007.
Other Expenses
Our combined general and administrative expenses and salaries and related benefits expense
during the six months ended June 30, 2007 increased to $3,677,000 compared to $3,530,000 during the
six months ended June 30, 2006. Our salaries and related benefits increased by $108,000 primarily
due to a reduction in costs capitalized relating to new loans funded and cost of living increases.
34
Permanent impairments on Retained Interests were $123,000 and $584,000 for the six months
ended June 30, 2007 and 2006, respectively, resulting primarily from reductions in expected future
cash flows due to increased prepayments.
Our provision for losses on rent and related receivables was $239,000 and $425,000 during the
six months ended June 30, 2007 and 2006, respectively. We performed analyses of our anticipated
future distribution related to the bankruptcy of Arlington based on best available information
provided to us to determine the collectibility of our investment in the rent and related
receivables. We have significant claims in the bankruptcy cases and the debtors have claims
against our assets in response. While we remain confident a substantial portion of our claims
would be allowed and the claims against us would be disallowed, due to the exorbitant cost of
defense coupled with the likelihood of reduced available assets in the debtors estates to pay
claims, we have executed an agreement with Arlington to settle our claims against Arlington and
Arlingtons claims against us. The settlement provides that Arlington will dismiss its claims
seeking the return of certain payments made pursuant to the property leases and Master Lease
Agreement, and substantially reduces our claims against the Arlington estates. The settlement
further provides for mutual releases among the parties. The Bankruptcy Court has approved the
settlement. Accordingly, there are no remaining assets or liabilities recorded in the accompanying
consolidated financial
statements related to this matter. However, the settlement will only become final upon the
Bankruptcy Courts approval of Arlingtons reorganization plan. The plan has not yet been filed.
Discontinued Operations
We recorded gains of $1,279,000 during the six months ended June 30, 2007 resulting primarily
from the sale of two hotel properties for approximately $5.5 million generating gains of $1.1
million and three assets acquired in liquidation for approximately $7.6 million generating gains of
approximately $185,000. We had net gains on the sales of real estate of $2,019,000 during the six
months ended June 30, 2006 resulting primarily from the sale of ten hotel properties for
approximately $20.5 million generating gains of $1.8 million and seven assets acquired in
liquidation for approximately $4.1 million generating gains of $0.2 million. As the down payments
received were not sufficient to qualify for full accrual gain treatment on certain of the sales, we
recorded initial installment gains and deferred the remaining gains. Our deferred gains total
approximately $2.6 million at June 30, 2007. Deferred gains will be recorded to income as
principal is received on the related loans receivable until the required amount of cash proceeds
are obtained from the purchaser to qualify for full accrual gain treatment.
Impairment losses were $233,000 and $94,000 for the six months ended June 30, 2007 and 2006,
respectively. During the six months ended June 30, 2007, we recorded an impairment loss related to
an estimated decline in fair value of an asset acquired in liquidation. For our real estate assets
held for sale, we performed a recoverability test to determine if the expected net sales proceeds
exceeded their carrying value. Based on this analysis, we recorded impairment losses of $94,000
during the six months ended June 30, 2006.
Our net earnings (losses) from discontinued operations were ($441,000) during the six months
ended June 30, 2007 compared to $91,000 during the six months ended June 30, 2006. The primary
cause of the net loss from discontinued operations during the six months ended June 30, 2007 was
fees for the prepayment of two mortgage notes of approximately $452,000 incurred in conjunction
with the sale of the related hotel properties.
Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
Overview
Income from continuing operations decreased to $3,387,000 ($0.32 per share) during the three
months ended June 30, 2007 from $3,449,000 ($0.32 per share) during the three months ended June 30,
2006. As described in more detail below, significant changes when comparing the periods were:
|
|
|
A decrease in income from Retained Interests of $605,000 due primarily to a
decrease in our weighted average balance outstanding due mainly to prepayments and a
reduction in unanticipated prepayment fees; |
|
|
|
A decrease in other income of $332,000 due primarily to decreased premium
income; |
|
|
|
An increase in interest income of $269,000 due primarily to an increase in
our weighted average loans outstanding; and |
|
|
|
A decrease in non-cash losses of $577,000, including provision for loss on
rent and related receivables, permanent impairments on Retained Interests and loan
losses. |
35
Net income increased to $4,169,000 ($0.39 per share) during the three months ended June 30,
2007 from $3,650,000 ($0.34 per share) during the three months ended June 30, 2006. In addition to
the changes in income from continuing operations described above, net income increased during the
three months ended June 30, 2007 due to net gains on sales of real estate totaling approximately
$1.3 million partially offset by net losses on discontinued operations of $470,000.
More detailed comparative information on the composition of and changes in our revenues and
expenses is provided below.
Revenues
Interest income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Interest income loans |
|
$ |
3,934 |
|
|
$ |
3,751 |
|
Accretion of loan fees and discounts |
|
|
112 |
|
|
|
122 |
|
Interest income idle funds |
|
|
152 |
|
|
|
56 |
|
|
|
|
|
|
|
|
$ |
4,198 |
|
|
$ |
3,929 |
|
|
|
|
|
|
The increase in interest income loans was primarily attributable to an increase in our
weighted average loans receivable outstanding of $9.0 million (6%) to $166.9 million during the
three months ended June 30, 2007 from $157.9 million during the three months ended June 30, 2006.
The increase in our idle funds interest income is primarily due to cash and cash equivalents of our
SBICs. These funds are restricted and can only be used for commitments of the SBICs.
Income from Retained Interests decreased $605,000 primarily due to (1) a decrease in the
weighted average balance outstanding of $5.0 million to $54.1 million during the three months ended
June 30, 2007 compared to $59.1 million during the three months ended June 30, 2006 and (2) a
decrease in unanticipated prepayment fees of $240,000. The yield on our Retained Interests, which
is comprised of the income earned less permanent impairments, decreased to 12.5% during the three
months ended June 30, 2007 from 13.6% during the three months ended June 30, 2006.
Other income consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Prepayment fees |
|
$ |
301 |
|
|
$ |
318 |
|
Servicing income |
|
|
192 |
|
|
|
265 |
|
Premium income |
|
|
14 |
|
|
|
291 |
|
Other loan related income |
|
|
77 |
|
|
|
82 |
|
Equity in earnings of unconsolidated subsidiaries |
|
|
26 |
|
|
|
16 |
|
Other |
|
|
30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
$ |
640 |
|
|
$ |
972 |
|
|
|
|
|
|
While prepayment activity has remained at relatively high levels and we believe that we
will continue to see prepayment activity at these higher levels during the remainder of 2007,
prepayment fees have decreased. Prepayment fees on our variable-rate loans are generally less per
loan than fixed-rate loans. As we are primarily originating variable-rate loans, we anticipate, as
the principal balance outstanding our fixed-rate loans declines, that prepayment fees will decline.
In addition, during the last two years we have originated, and may continue to originate,
variable-rate loans with no prepayment
36
fees or reduced prepayment fees. However, prepayment fee
income is dependent upon a number of factors and is not generally predictable.
We earn fees for servicing all loans held by the QSPEs and on loans sold into the secondary
market by First Western. As these fees are based on the principal balances of sold loans
outstanding, they will decrease over time as scheduled principal payments and prepayments occur.
Premium income results from the sale of First Westerns loans into the secondary market. We
sold two loans and eight loans and collected cash premiums of approximately $15,000 and $358,000
during the three months ended June 30, 2007 and 2006, respectively. To the extent we are able to
increase our volume of loans originated by First Western, there should be a corresponding increase
in premiums received.
Interest Expense
Interest expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
June 30, |
|
|
2007 |
|
2006 |
|
|
(In thousands) |
Junior subordinated notes |
|
$ |
595 |
|
|
$ |
569 |
|
Conduit facility |
|
|
592 |
|
|
|
381 |
|
Debentures payable |
|
|
124 |
|
|
|
242 |
|
Revolving credit facility |
|
|
38 |
|
|
|
38 |
|
Mortgages on hotel properties |
|
|
|
|
|
|
28 |
|
Structured notes |
|
|
|
|
|
|
47 |
|
Other |
|
|
71 |
|
|
|
74 |
|
|
|
|
|
|
|
|
$ |
1,420 |
|
|
$ |
1,379 |
|
|
|
|
|
|
The weighted average cost of our funds at June 30, 2007 was 7.0% compared to 7.2% at
June 30, 2006. Interest on the junior subordinated notes increased due to increases in LIBOR.
Interest on the conduit facility increased primarily as a result of increased utilization of the
facility and increases in variable interest rates. Our weighted average borrowings outstanding on
our conduit facility increased to $33.4 million during the three months ended June 30, 2007
compared to $20.0 million during the three months ended June 30, 2006.
The reduction of interest expense on our debentures payable was a result of the prepayment,
without penalty, of $7,310,000 of fixed-rate SBA debentures with an interest rate of approximately
8.5% during the third quarter of 2006. In addition, interest expense was reduced since (1) the
remaining balance outstanding on our structured notes was repaid on December 1, 2006 and (2) we
repaid our remaining two mortgage notes with a principal balance of approximately $2.6 million
during the second quarter of 2007.
Other Expenses
Our combined general and administrative expenses and salaries and related benefits expense
during the three months ended June 30, 2007 remained relatively constant at $1,794,000 compared to
$1,848,000 during the three months ended June 30, 2006.
Permanent impairments on Retained Interests were $99,000 and $536,000 for the three months
ended June 30, 2007 and 2006, respectively, resulting primarily from reductions in expected future
cash flows due to increased prepayments.
Our provision for losses on rent and related receivables was $125,000 during the three months
ended June 30, 2006. We performed analyses of our anticipated future distribution related to the
bankruptcy of Arlington based on best available
37
information provided to us to determine the
collectibility of our investment in the rent and related receivables. We have significant claims
in the bankruptcy cases and the debtors have claims against our assets in response. While we
remain confident a substantial portion of our claims would be allowed and the claims against us
would be disallowed, due to the exorbitant cost of defense coupled with the likelihood of reduced
available assets in the debtors estates to pay claims, we have executed an agreement with
Arlington to settle our claims against Arlington and Arlingtons claims against us. The settlement
provides that Arlington will dismiss its claims seeking the return of certain payments made
pursuant to the property leases and Master Lease Agreement, and substantially reduces our claims
against the Arlington estates. The settlement further provides for mutual releases among the
parties. The Bankruptcy Court has approved the settlement. Accordingly, there are no remaining
assets or liabilities recorded in the accompanying consolidated financial statements
related to this matter. However, the settlement will only become final upon the Bankruptcy Courts
approval of Arlingtons reorganization plan. The plan has not yet been filed.
Discontinued Operations
We had gains of $1,252,000 during the three months ended June 30, 2007 resulting primarily
from the sale of two hotel properties for $5.5 million generating gains of approximately $1.1
million and two assets acquired in liquidation for $6.2 million generating gains of approximately
$165,000. We had gains on the sales of real estate of $142,000 during the three months ended June
30, 2006 resulting primarily from the sale of an asset acquired in liquidation for approximately
$475,000 generating a gain of approximately $129,000. We also sold four hotel properties during
the three months ended June 30, 2006. As the down payments received were not sufficient to qualify
for full accrual gain treatment on certain of the sales, we recorded initial installment gains and
deferred the remaining gains. Our deferred gains total approximately $2.6 million at June 30,
2007. Deferred gains will be recorded to income as principal is received on the related loans
receivable until the required amount of cash proceeds are obtained from the purchaser to qualify
for full accrual gain treatment.
Our net earnings (losses) from discontinued operations were ($470,000) during the three months
ended June 30, 2007 compared to $80,000 during the three months ended June 30, 2006. The primary
cause of the net loss from discontinued operations during the three months ended June 30, 2007 was
fees for the prepayment of two mortgage notes of approximately $452,000 incurred in conjunction
with sale of the related hotel properties.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Analysis
Information on our cash flow was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
|
June 30, |
|
|
|
|
2007 |
|
2006 |
|
Change |
|
|
(In thousands) |
Cash provided by operating activities |
|
$ |
7,236 |
|
|
$ |
6,051 |
|
|
$ |
1,185 |
|
Cash provided by investing activities |
|
$ |
8,964 |
|
|
$ |
22,735 |
|
|
$ |
(13,771 |
) |
Cash used in financing activities |
|
$ |
(7,996 |
) |
|
$ |
(24,002 |
) |
|
$ |
16,006 |
|
Operating Activities
Net cash flow from operating activities is primarily used to fund our dividends. The increase
in cash provided by operating activities is primarily due to an increase in proceeds from the sale
of guaranteed loans net of loans funded, held for sale of $760,000. Our dividends paid during the
three months ended June 30, 2007 and 2006, included in financing activities, were $7,529,000 and
$6,454,000, respectively.
Investing Activities
During the six months ended June 30, 2007, the primary sources of funds were (1) principal
collected on loans receivable, net of loans funded, of $4,826,000, (2) net principal collected on
Retained Interests of $2,285,000 and (3) net
38
proceeds from the sales of hotel properties and assets
acquired in liquidation of $2,176,000. During the six months ended June 30, 2006, the primary
sources of funds were (1) net proceeds from the sales of hotel properties and assets acquired in
liquidation of $4,289,000, (2) principal collected on Retained Interests of $2,498,000 and (3)
principal collected on loans receivable, net of loans funded, of $14,918,000. We continue to
experience high prepayment activity. This prepayment activity is primarily a result of increased
competition combined with the effect of the reduction or expiration of prepayment fees on certain
of our loans due to the structure of the fees (i.e., expiration of lock out or yield maintenance
provisions). In addition, prepayment activity for our variable-rate loans receivable has increased
since borrowers with variable-rate loans are generally seeking fixed-rate loans due to currently marketed fixed interest rates being lower
than the current interest rate on their loan and/or concerns of rising interest rates. In
addition, competitors are providing larger advance rates on loans than we typically provide. We
anticipate prepayment activity at these higher levels during the remainder of 2007. As of June 30,
2007, we have sold all of our hotel properties and assets acquired in liquidation; therefore, no
additional proceeds are expected.
Financing Activities
We used funds in financing activities during the six months ended June 30, 2007 primarily to
pay dividends of $7,529,000. We used funds in financing activities during the six months ended
June 30, 2006 primarily for (1) payment of principal on notes and mortgages payable of $10,245,000
related primarily to sales of hotel properties, (2) payment of dividends of $6,454,000 and (3) net
repayment of the conduit facility of $7,000,000. We expect to continue to utilize our credit
facilities for short-term financing needs.
Sources and Uses of Funds
General
In general, our liquidity requirements include origination of new loans, debt principal
payment requirements, payment of dividends and operating costs. We intend to utilize, as deemed
appropriate by prevailing market conditions, a combination of the following sources to generate
funds:
|
|
|
Operating revenues; |
|
|
|
Principal collections on existing loans receivable and Retained Interests; |
|
|
|
Structured loan financings or sales; |
|
|
|
Advances under our conduit facility; |
|
|
|
Borrowings under our short-term uncollateralized revolving credit facility (the Revolver); |
|
|
|
Issuance of SBA debentures; |
|
|
|
Issuance of junior subordinated notes; and/or |
|
|
|
Common equity issuance. |
We had approximately $11.9 million of cash and cash equivalents at June 30, 2007, of which
approximately $11.3 million was available only for future operating commitments of our SBICs.
Pursuant to SBA rules and regulations, our SBICs cannot advance funds to us. As a result, we
borrow funds on our Revolver or conduit facility to make investments even though our SBICs have
available cash and cash equivalents. We may utilize the cash and cash equivalents of our SBICs to
prepay SBA debentures and/or the preferred stock.
Our outstanding commitments to fund new loans were $14.4 million at June 30, 2007, of which
$2.9 million were for prime-rate loans to be originated by First Western, the government guaranteed
portion of which (approximately 75% of each individual loan) will be sold into the secondary market
and $3.0 million were for loans to be originated by one of our SBICs. Commitments have fixed
expiration dates and require payment of a fee to us. Since some commitments expire without the
proposed loan closing, total committed amounts do not necessarily represent future cash
requirements.
We expect that these sources of funds and cash on hand will be sufficient to meet our working
capital needs. However, there can be no assurance that we will be able to raise funds through
these financing sources. A reduction in the availability of the above sources of funds could have
a material adverse effect on our financial condition and results of operations. If these sources
are not available, we may have to originate loans at reduced levels or sell assets, potentially on
unfavorable terms.
39
As a REIT, we must distribute to our shareholders at least 90% of our REIT taxable income to
maintain our tax status under the Internal Revenue Code of 1986, as amended (the Code).
Accordingly, to the extent the sources above represent taxable income, such amounts have
historically been distributed to our shareholders. In general, should we receive less cash from
our portfolio of investments, we can lower the dividend so as not to cause any material cash
shortfall. During 2007, we anticipate that our cash flows from operating activities will be
utilized to fund our expected 2007 dividend distributions and generally will not be available to
fund portfolio growth.
Sources of Funds
Prior to 2004, our primary source of long-term funds was structured loan sale transactions.
The timing of future securitization transactions is dependent upon our portfolio and loan
originations. As a result of continued higher than anticipated prepayments on our loan portfolio,
we do not anticipate completing our next structured loan transaction until 2008 at which time we
expect to have a sufficient pool of loans to complete a securitization.
Our primary source of short-term funds is a three-year $100.0 million conduit facility
expiring February 6, 2008. Interest payments on the advances are payable at a rate approximating
0.85% over LIBOR and the principal repayment obligations are expected to occur through future
securitizations of the loans collateralizing advances under the conduit facility. In addition, we
are charged an unused fee equal to 12.5 basis points computed based on the daily available balance.
The conduit facility allows for advances based on the amount of eligible collateral sold and has
minimum collateral requirements. At June 30, 2007, approximately $47.9 million of our loans were
collateral for our conduit facility and we had outstanding advances of approximately $29.1 million.
At June 30, 2007, PMC Commercial had available approximately $23.5 million of loans which are
conduit eligible loans. We are currently negotiating to extend the conduit facility for an
additional year and expect the completion of the extension during the third quarter of 2007.
We have availability of $20.0 million under our Revolver which matures December 31, 2007.
Under our Revolver, we are charged interest on the balance outstanding at our election of either
the prime rate of the lender less 75 basis points or 162.5 basis points over the 30, 60 or 90-day
LIBOR. We are charged an unused fee equal to 37.5 basis points computed based on our daily
available balance.
Uses of Funds
The primary use of our funds is to originate commercial mortgage loans to small businesses in
the limited service hospitality industry. During the remaining six months of 2007, we anticipate
loan originations will range from $25 million to $35 million. As a REIT, we also use funds for the
payment of dividends to shareholders. We also use funds for payment of our operating overhead
including salaries and other general and administrative expenses and we have payment requirements
on our borrowings.
In addition, we also use funds to repurchase loans from the QSPEs which (1) become
charged-off as defined in the transaction documents either through delinquency or initiation of
foreclosure or (2) reach maturity. We repurchased a loan from a QSPE which had become
charged-off as defined in the transaction documents with an outstanding principal balance of
approximately $3.5 million during March 2007.
During the three months ended June 30, 2007, we repaid the remaining balances on our mortgage
notes of approximately $2.6 million primarily using our short-term credit facilities.
40
Summarized Contractual Obligations, Commitments and Contingencies
Our contractual obligations at June 30, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than |
|
1 to 3 |
|
4 to 5 |
|
After 5 |
Contractual Obligations |
|
Total |
|
1 year |
|
years |
|
years |
|
years |
|
|
(In thousands, except footnotes) |
Debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debentures payable (1) |
|
$ |
8,190 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,190 |
|
Redeemable preferred stock of subsidiary (2) |
|
|
4,000 |
|
|
|
|
|
|
|
4,000 |
|
|
|
|
|
|
|
|
|
Conduit facility |
|
|
29,143 |
|
|
|
29,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated debt (3) |
|
|
27,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated debt (4) |
|
|
68,882 |
|
|
|
3,918 |
|
|
|
5,622 |
|
|
|
5,622 |
|
|
|
53,720 |
|
Mortgage note of unconsolidated subsidiary |
|
|
375 |
|
|
|
107 |
|
|
|
195 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Contractual Obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage note of unconsolidated subsidiary (5) |
|
|
1,269 |
|
|
|
67 |
|
|
|
153 |
|
|
|
1,049 |
|
|
|
|
|
Operating lease (6) |
|
|
885 |
|
|
|
185 |
|
|
|
405 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual cash obligations |
|
$ |
139,814 |
|
|
$ |
33,420 |
|
|
$ |
10,375 |
|
|
$ |
7,039 |
|
|
$ |
88,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debentures payable are presented at face value. |
(2) |
|
The 4% preferred stock of our subsidiary (presented at par value) is required to be
repaid at par in September 2009 ($2.0 million) and May 2010 ($2.0 million). Dividends of
approximately $160,000 are due annually on the 4% preferred stock of our subsidiary
(recorded as interest expense). |
(3) |
|
The junior subordinated notes may be redeemed at our option, without penalty,
beginning March 30, 2010 and are subordinated to PMC Commercials existing debt. |
(4) |
|
For the interest obligation, the variable rate in effect at June 30, 2007 was utilized and no change in variable interest rates was assumed. |
(5) |
|
Represents a mortgage note with a fixed interest rate of 8.5% of an unconsolidated subsidiary. |
(6) |
|
Represents future minimum lease payments under our operating lease for office space. |
41
Our commitments and contingencies at June 30, 2007 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration Per Period |
|
|
Total Amounts |
|
Less than |
|
1 to 3 |
|
4 to 5 |
|
After 5 |
Commitments |
|
Committed |
|
1 year |
|
years |
|
years |
|
years |
|
|
|
|
|
|
(In thousands, except footnotes) |
Environmental (1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Other commitments (2) |
|
|
14,402 |
|
|
|
14,402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total commitments |
|
$ |
14,402 |
|
|
$ |
14,402 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
PMC Funding Corp. (PMC Funding) has a recorded liability of approximately $300,000
at June 30, 2007 related to a loan with collateral that has environmental remediation
obligations which are the primary responsibility of our borrower. Under purchase
accounting, the liability was assumed and the loan was acquired by PMC Commercial in the
merger with PMC Capital, Inc. The loan was originated in connection with the sale of
the underlying collateral by PMC Funding to the borrower. The sale was financed by PMC
Capital, Inc. through a loan with an outstanding principal balance of approximately
$560,000 at June 30, 2007 which is in default. As a result, we filed a lawsuit in the
State of Georgia. The borrower has filed a counterclaim alleging, among other things,
breach of contract and non-default under the loan documents. We do not believe there is
any merit to the counterclaim and intend to vigorously pursue all remedies available to
us under the law. During 2005, we were informed by the Georgia Department of Natural
Resources that the remediation plan for the property required revision. While our
borrower has the primary responsibility for the environmental remediation, to the extent
we were forced to reacquire the property, we currently believe that the estimated fair
value of the collateral underlying the loan exceeds the current outstanding principal
balance on the loan. At the present time, we have been unable to quantify additional
costs, if any, of the potential changes in remediation methods requested by Georgia;
however, these costs could be material and may exceed the value of the collateral net of
the recorded liability and the current outstanding principal balance of the loan. |
(2) |
|
Represents loan commitments and approvals outstanding. |
See Note 20 to the accompanying consolidated financial statements for a detailed discussion of
commitments and contingencies.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 7 of the Consolidated Financial Statements for a full description of recent
accounting pronouncements including the respective dates adopted or expected dates of adoption and
effect, if any, on our results of operations and financial condition.
DIVIDENDS
Dividends declared during 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
Date Paid |
|
Record Date |
|
|
Per Share |
|
April 9, 2007 |
|
March 30, 2007 |
|
$ |
0.30 |
|
|
|
|
|
|
|
|
|
July 9, 2007 |
|
June 29, 2007 |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
Our shareholders are entitled to receive dividends when and as declared by our Board of
Trust Managers (the Board). Our Board considers many factors including, but not limited to,
expectations for future earnings, REIT taxable income, the interest rate environment, competition,
our ability to obtain leverage and our loan portfolio activity in determining dividend policy. The
Board also uses REIT taxable income plus tax depreciation in determining the amount of dividends
declared. In addition, as a REIT we are required to pay out 90% of REIT taxable income.
Consequently, the dividend rate on
42
a quarterly basis will not necessarily correlate directly to any
single factor such as REIT taxable income or earnings expectations. We anticipate that as a
result of earnings from our core business and gains generated on property sales during 2006 and
2007, that we will maintain our current quarterly dividend of $0.30 per common share through the
end of 2007.
REIT TAXABLE INCOME
REIT taxable income is presented to assist investors in analyzing our performance and is a
measure that is presented quarterly in our consolidated financial statements and is one of the
factors utilized by our Board in determining the level of dividends to be paid to our shareholders.
The following reconciles net income to REIT taxable income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2007 |
|
2006 |
|
2007 |
|
2006 |
|
|
(In thousands) |
Net income |
|
$ |
6,990 |
|
|
$ |
8,691 |
|
|
$ |
4,169 |
|
|
$ |
3,650 |
|
Less: taxable REIT subsidiaries net income, net of tax |
|
|
(566 |
) |
|
|
(621 |
) |
|
|
(322 |
) |
|
|
(443 |
) |
Add: book depreciation |
|
|
67 |
|
|
|
128 |
|
|
|
21 |
|
|
|
57 |
|
Less: tax depreciation |
|
|
(92 |
) |
|
|
(359 |
) |
|
|
(35 |
) |
|
|
(26 |
) |
Book/tax difference on property sales |
|
|
693 |
|
|
|
566 |
|
|
|
274 |
|
|
|
216 |
|
Book/tax difference on Retained Interests, net |
|
|
568 |
|
|
|
949 |
|
|
|
275 |
|
|
|
721 |
|
Impairment losses |
|
|
233 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
Book/tax difference on rent and related receivables |
|
|
(1,152 |
) |
|
|
425 |
|
|
|
(1,391 |
) |
|
|
125 |
|
Book/tax difference on amortization and accretion |
|
|
(147 |
) |
|
|
(89 |
) |
|
|
(73 |
) |
|
|
(52 |
) |
Asset valuation |
|
|
(301 |
) |
|
|
(887 |
) |
|
|
1 |
|
|
|
2 |
|
Other book/tax differences, net |
|
|
175 |
|
|
|
(162 |
) |
|
|
(89 |
) |
|
|
(203 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REIT taxable income |
|
$ |
6,468 |
|
|
$ |
8,684 |
|
|
$ |
2,830 |
|
|
$ |
4,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions declared |
|
$ |
6,456 |
|
|
$ |
6,449 |
|
|
$ |
3,230 |
|
|
$ |
3,226 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
10,755 |
|
|
|
10,745 |
|
|
|
10,756 |
|
|
|
10,744 |
|
|
|
|
|
|
|
|
|
|
As a REIT, PMC Commercial generally will not be subject to corporate level Federal income
tax on net income that is currently distributed to shareholders provided the distribution exceeds
90% of REIT taxable income. We may make an election under the Code to treat distributions declared
in the current year as distributions of the prior years taxable income. Upon election, the Code
provides that, in certain circumstances, a dividend declared subsequent to the close of an entitys
taxable year and prior to the extended due date of the entitys tax return may be considered as
having been made in the prior tax year in satisfaction of income distribution requirements.
43
ITEM 3.
Quantitative and Qualitative Disclosures About Market Risk
Since our consolidated balance sheet consists of items subject to interest rate risk, we are
subject to market risk associated with changes in interest rates as described below. Although
management believes that the analysis below is indicative of our sensitivity to interest rate
changes, it does not adjust for potential changes in credit quality, size and composition of our
balance sheet and other business developments that could affect our financial position and net
income. Accordingly, no assurances can be given that actual results would not differ materially
from the potential outcome simulated by these estimates.
LOANS RECEIVABLE
Our loans receivable are recorded at cost and adjusted by net loan origination fees and
discounts (which are recognized as adjustments of yield over the life of the loan) and loan loss
reserves. Our loans receivable are approximately 88% variable-rate at spreads over LIBOR or the
prime rate consistent with the market. Increases or decreases in interest rates will generally not
have a material impact on the fair value of our variable-rate loans receivable. If we were required
to sell our loans at a time we would not otherwise do so, our losses may be substantial.
Changes in interest rates on our fixed-rate loans receivable do not have an immediate impact
on our interest income. Our interest rate risk on our fixed-rate loans receivable is primarily
related to loan prepayments and maturities. The average maturity of our loan portfolio is less
than their average contractual terms because of prepayments. The average life of mortgage loans
receivable tends to increase when the current mortgage rates are substantially higher than rates on
existing mortgage loans receivable and, conversely, decrease when the current mortgage rates are
substantially lower than rates on existing mortgage loans receivable (due to refinancings of
fixed-rate loans).
We had $21.1 million and $23.4 million of fixed-rate loans receivable at June 30, 2007 and
December 31, 2006, respectively. The estimated fair value of these fixed interest rate loans
receivable (approximately $21.9 million and $23.9 million at June 30, 2007 and December 31, 2006,
respectively) is dependent upon several factors including changes in interest rates and the market
for the types of loans that we have originated.
At June 30, 2007 and December 31, 2006, we had $147.9 million and $145.8 million of
variable-rate loans receivable, respectively, and $56.2 million and $54.0 million of variable-rate
debt, respectively. On the differential between our variable-rate loans receivable outstanding and
our variable-rate debt ($91.7 million and $91.8 million at June 30, 2007 and December 31, 2006,
respectively) we have interest rate risk. To the extent variable rates decrease, our interest
income net of interest expense would decrease.
As a result of approximately $9.9 million and $16.4 million at June 30, 2007 and December 31,
2006, respectively, of our variable-rate loans receivable having interest rate floors (from 5.25%
to 6.0%), we are deemed to have derivative investments. However, we are not required to bifurcate
these instruments; therefore, they are not accounted for as derivatives. To the extent that
interest rates decline with respect to our loans that have floors, our interest expense on our
variable-rate debt may be reduced by a higher amount than our interest income. We do not use
derivatives for speculative purposes.
The sensitivity of our variable-rate loans receivable and debt to changes in interest rates is
regularly monitored and analyzed by measuring the characteristics of our assets and liabilities.
We assess interest rate risk in terms of the potential effect on interest income net of interest
expense in an effort to ensure that we are insulated from any significant adverse effects from
changes in interest rates. Based on our analysis of the sensitivity of interest income and
interest expense at June 30, 2007 and December 31, 2006, if the consolidated balance sheet were to
remain constant and no actions were taken to alter the existing interest rate sensitivity, each
hypothetical 100 basis point reduction in interest rates would reduce net income by approximately
$917,000 and $918,000, respectively, on an annual basis.
44
MORTGAGE NOTES AND DEBENTURES PAYABLE, JUNIOR SUBORDINATED NOTES, CREDIT FACILITIES AND REDEEMABLE
PREFERRED STOCK OF SUBSIDIARY (DEBT)
As of June 30, 2007 and December 31, 2006, approximately $11.9 million and $14.5 million,
respectively, of our consolidated debt had fixed rates of interest and is therefore not affected by
changes in interest rates. Our variable-rate debt is based on the prime rate and/or LIBOR (or
approximates LIBOR) and thus subject to adverse changes in market interest rates. Assuming there
were no increases or decreases in the balance outstanding under our variable-rate debt at June 30,
2007, each hypothetical 100 basis points increase in interest rates would increase interest expense
and decrease net income by approximately $562,000.
Our fixed-rate debt at June 30, 2007 is primarily comprised of SBA debentures which currently
have prepayment penalties up to 4% of the principal balance.
The following presents the principal amounts, weighted average interest rates and fair values
required by year of expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes of our outstanding debt at June 30, 2007 and December 31, 2006. Market risk
disclosures related to our outstanding debt as of June 30, 2007 and December 31, 2006 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Month Periods Ending June 30, |
|
|
|
|
|
Carrying |
|
Fair |
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Value |
|
Value (1) |
|
|
(Dollars in thousands) |
Fixed-rate debt (2) |
|
$ |
|
|
|
$ |
|
|
|
$ |
3,718 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
8,162 |
|
|
$ |
11,880 |
|
|
$ |
11,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt (LIBOR
based) (3) |
|
|
29,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,070 |
|
|
|
56,213 |
|
|
|
56,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
29,143 |
|
|
$ |
|
|
|
$ |
3,718 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
35,232 |
|
|
$ |
68,093 |
|
|
$ |
67,914 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value is based on a present value calculation based on prices of the same or similar instruments after
considering risk, current interest rates, prepayment fees and remaining maturities. |
(2) |
|
The weighted average interest rate of our fixed-rate debt at June 30, 2007 was 6.3%. |
(3) |
|
The weighted average interest rate of our variable-rate debt at June 30, 2007 was 7.4%. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ending December 31, |
|
|
|
|
|
|
Carrying |
|
Fair |
|
|
2007 |
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
Thereafter |
|
Value |
|
Value (1) |
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed-rate debt (2) |
|
$ |
142 |
|
|
$ |
153 |
|
|
$ |
2,017 |
|
|
$ |
1,998 |
|
|
$ |
1,042 |
|
|
$ |
9,119 |
|
|
$ |
14,471 |
|
|
$ |
14,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable-rate debt (LIBOR
based) (3) |
|
|
|
|
|
|
26,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,070 |
|
|
|
54,038 |
|
|
|
54,038 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
142 |
|
|
$ |
27,121 |
|
|
$ |
2,017 |
|
|
$ |
1,998 |
|
|
$ |
1,042 |
|
|
$ |
36,189 |
|
|
$ |
68,509 |
|
|
$ |
68,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The estimated fair value is based on a present value calculation based on prices of the same or similar instruments after
considering risk, current interest rates and remaining maturities. |
(2) |
|
The weighted average interest rate of our fixed-rate debt at December 31, 2006 was 6.6%. |
(3) |
|
The weighted average interest rate of our variable-rate debt at December 31, 2006 was 7.5%. |
RETAINED INTERESTS
Our Retained Interests are valued based on various factors including estimates of
appropriate discount rates. Changes in the discount rates used in determining the fair value of
the Retained Interests will impact their carrying value. Any appreciation of our Retained
Interests is included in the accompanying balance sheet in beneficiaries equity. Any depreciation
of our Retained Interests is either included in the accompanying statement of income as a permanent
impairment (if there is a reduction in expected future cash flows) or on our balance sheet in
beneficiaries equity as an unrealized loss. Assuming all other factors (i.e., prepayments,
losses, etc.) remained unchanged, if discount rates were 100 basis points and 200 basis points
higher than rates estimated at June 30, 2007, the estimated fair value of our Retained Interests at
45
June 30, 2007 would have decreased by approximately $1.2 million and $2.4 million, respectively.
Assuming all other factors (i.e., prepayments, losses, etc.) remained unchanged, if discount rates
were 100 basis points and 200 basis points higher than rates estimated at December 31, 2006, the
estimated fair value of our Retained Interests at December 31, 2006 would have decreased by
approximately $1.6 million and $3.1 million, respectively.
46
ITEM 4.
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, management has evaluated the effectiveness of our disclosure controls and
procedures (as defined under rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934,
as amended (the Exchange Act)) as of June 30, 2007. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting that occurred
during the quarter ended June 30, 2007 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
47
PART II
Other Information
ITEM 1. Legal Proceedings
We have significant outstanding claims against Arlingtons bankruptcy estate. Arlington has
objected to our claims and initiated a complaint in the bankruptcy seeking, among other things, the
return of payments Arlington made pursuant to the property leases and the Master Lease Agreement.
While we remain confident a substantial portion of our claims would be allowed and the claims
against us would be disallowed, due to the exorbitant cost of defense coupled with the likelihood
of reduced available assets in the debtors estates to pay claims, we executed an agreement with
Arlington to settle our claims against Arlington and Arlingtons claims against us. The settlement
provides that Arlington will dismiss its claims seeking the return of certain payments made
pursuant to the property leases and Master Lease Agreement, and substantially reduces our claims
against the Arlington estates. The settlement further provides for mutual releases among the
parties. The Bankruptcy Court has approved the settlement. Accordingly, there are no remaining
assets or liabilities recorded in the accompanying consolidated financial statements related to
this matter. However, the settlement will only become final upon the Bankruptcy Courts approval
of Arlingtons reorganization plan. The plan has not yet been filed.
In the normal course of business we are periodically party to certain legal actions and
proceedings involving matters that are generally incidental to our business (i.e., collection of
loans receivable). In managements opinion, the resolution of these legal actions and proceedings
will not have a material adverse effect on our consolidated financial statements.
ITEM 1A. Risk Factors
There have been no material changes to the factors disclosed in Item 1A. Risk Factors in our
Annual Report on Form 10-K for the year ended December 31, 2006.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
ITEM 3. Defaults upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
At our Annual Meeting of Shareholders held on June 9, 2007 (the Annual Meeting), the
following individuals were elected to the Board with the following votes:
|
|
|
|
|
|
|
|
|
Director |
|
Votes For |
|
Votes Withheld |
Nathan G. Cohen |
|
|
9,345,561 |
|
|
|
69,572 |
|
Martha R. Greenberg |
|
|
9,236,650 |
|
|
|
178,483 |
|
Roy H. Greenberg |
|
|
9,337,850 |
|
|
|
77,283 |
|
Barry A. Imber |
|
|
9,355,248 |
|
|
|
59,885 |
|
Andrew S. Rosemore |
|
|
9,310,429 |
|
|
|
104,704 |
|
Lance B. Rosemore |
|
|
9,303,798 |
|
|
|
111,335 |
|
Irving Munn |
|
|
9,345,192 |
|
|
|
69,941 |
|
The proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent
public accountants was approved at the Annual Meeting. There were 9,338,656 votes for, 39,469
votes against and 37,008 abstentions.
48
ITEM 5. Other Information
None.
ITEM 6. Exhibits
|
|
|
|
|
|
|
3 |
.1 |
Declaration of Trust (incorporated by reference
to the exhibits to the Registrants Registration Statement on Form S-11
filed with the SEC on June 25, 1993, as amended (Registration No.
33-65910)). |
|
|
|
3 |
.1(a) |
Amendment No. 1 to Declaration of Trust (incorporated by reference to
the Registrants Registration Statement on Form S-11 filed with the SEC
on June 25, 1993, as amended (Registration No. 33-65910)). |
|
|
|
3 |
.1(b) |
Amendment No. 2 to Declaration of Trust (incorporated by reference to
the Registrants Annual Report on Form 10-K for the year ended December
31, 1993). |
|
|
|
3 |
.1(c) |
Amendment No. 3 to Declaration of Trust (incorporated by reference to
the Registrants Annual Report on Form 10-K for the year ended December
31, 2003). |
|
|
|
3 |
.2 |
Bylaws (incorporated by reference to the
exhibits to the Registrants Registration Statement on Form S-11 filed
with the SEC on June 25, 1993, as amended (Registration No. 33-65910)). |
|
|
* |
10 |
.1 |
Employment agreement with Lance B. Rosemore dated June 25, 2007. |
|
|
* |
10 |
.2 |
Employment agreement with Andrew S. Rosemore dated June 25, 2007. |
|
|
* |
10 |
.3 |
Employment agreement with Jan F. Salit dated June 25, 2007. |
|
|
* |
10 |
.4 |
Employment agreement with Barry N. Berlin dated June 25, 2007. |
|
|
* |
10 |
.5 |
Employment agreement with Ron Dekelbaum dated June 5, 2007. |
|
|
* |
31 |
.1 |
Section 302 Officer Certification Chief Executive Officer |
|
|
* |
31 |
.2 |
Section 302 Officer Certification Chief Financial Officer |
|
|
** |
32 |
.1 |
Section 906 Officer Certification Chief Executive Officer |
|
|
** |
32 |
.2 |
Section 906 Officer Certification Chief Financial Officer |
|
|
|
* |
|
Filed herewith. |
|
** |
|
Submitted herewith. |
49
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
PMC Commercial Trust
|
|
Date: 8/9/07 |
/s/ Lance B. Rosemore
|
|
|
Lance B. Rosemore |
|
|
President and Chief Executive Officer |
|
|
|
|
|
Date: 8/9/07 |
/s/ Barry N. Berlin
|
|
|
Barry N. Berlin |
|
|
Chief Financial Officer
(Principal Accounting Officer) |
|
|
50
exv10w1
Exhibit 10.1
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT made as of June 25, 2007 by and between PMC Commercial Trust, a Texas Real
Estate Investment Trust with its principal places of business in Dallas, Collin County, Texas,
hereinafter referred to as the COMPANY, and Lance B. Rosemore, hereinafter referred to as
EXECUTIVE.
WITNESSETH THAT:
In consideration of the promises herein contained, the parties hereto mutually agree as
follows:
1. Employment: The Company hereby employs the Executive as its President and Chief
Executive Officer with such powers and duties as may be specified by the Board of Trust Managers
(the Board). The Executive hereby accepts employment upon the terms and conditions as
hereinafter set forth.
2. Term: Subject to the provisions for termination as hereinafter provided, the term
of this Agreement shall begin immediately and shall terminate on the earlier of (i) the Executives
seventieth (70th) birthday or (ii) June 30, 2010 or such later date as determined by the
Board (the Term). The Term of this Executive Employment Contract may be extended annually by the
Board.
3. Compensation: For all services rendered by the Executive under this contract, the
Executive shall be paid an annual salary at a minimum at the annual rate for the Executive
effective as of July 1, 2007 (the Minimum Rate). The Minimum Rate may be increased by the Board
at its discretion. The annual salary is payable pursuant to the normal payroll practices of the
Company.
The Board may consider bonus compensation for the Executive if the performance of the Company
and the Executive justifies such bonus compensation.
4. Authorized Expenses: The Executive is authorized to incur reasonable expenses for
the promotion of the business of the Company. The Company will reimburse the Executive for all
such reasonable expenses upon the presentation by the Executive, from time to time, of an itemized
account of such expenditures.
The Executive shall be entitled to such additional and other fringe benefits as the Board
shall from time to time authorize, including but not limited to: A) health insurance coverage for
the Executive, his wife and dependent children; B) a monthly automotive allowance of $550, which
the Executive is to use to obtain an automobile to be available for company needs. All operating
expenses such as maintenance, insurance and fuel (excluding fuel for company travel) will be the
responsibility and expense of the Executive.
5. Extent of Services: The Executive shall devote a substantial portion of business
time, attention and energies to the business of the Company, and shall not, during the term of this Agreement,
engage in any other business activities, whether or not such activities are pursued for gain,
profit or other pecuniary advantage. This provision is not meant to prevent him from A) devoting
reasonable time to civic or philanthropic activities or B) investing his assets in such form or
manner providing that it does not require any substantial services on the part of the Executive
that will interfere with the Executives employment pursuant to this Agreement. Executives
employment is considered as full-time.
6. Working Facilities: The Executive shall be furnished with such facilities and
services suitable to his position and adequate for the performance of his duties.
7. Duties: The Executive is employed in an executive and supervisory capacity and
shall perform such duties consistent herewith as the Board of the Company shall from time to time
specify. Subject to the provisions of Section 14 hereof, the precise services of the Executive may
be extended or curtailed, from time to time, at the discretion of the Board of the Company.
8. Disclosure of Information: The Executive recognizes and acknowledges that the
Companys operating procedures or service techniques are valuable, special and unique assets of the
Companys business. The Executive will not, during or after the term of his employment, disclose
the list of the Companys customer base or service techniques to any person, firm, Company,
association or other entity for any reason or purpose whatsoever. In the event of breach or
threatened breach by the Executive of the provisions of this paragraph, the Company shall be
entitled to an injunction restraining any such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the Company for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Vacations: The Executive shall be entitled each year to a vacation in accordance
with the vacation contract addendum dated effective July 1, 1999.
10. Disability: If the Executive is unable to perform his services by reason of
illness or total incapacity, based on standards similar to those utilized by the U.S. Social
Security Administration, he shall receive his full salary for one (1) year of said total incapacity
through coordination of benefits with any existing disability insurance program provided by the
Company (a reduction in salary by that amount paid by any Company provided insurance). Should said
Executive be totally incapacitated beyond a one-year period, so that he is not able to devote full
time to his employment with said Company, then this Agreement shall terminate.
11. Death During Employment: If the Executive dies during the term of employment and
has not attained the age of seventy years, the Company and/or any third party insurance provided by
the Company, through a coordination of benefits, shall pay the estate of the Executive a death
benefit equal to two times the Executives annual salary. In the event the Executive receives
death benefits payable under any group life insurance policy issued to the Company, the Companys
liability under this clause will be reduced by the amount of the death benefit paid under such
policy. The Company shall pay any remaining death benefits to the estate of the Executive over the
course of twelve (12) months in the same manner and under the same terms as the Executive would
have been paid if he had still been working for the Company. No later than one (1) month from the
date of death, the estate of the Executive will also be paid any accumulated vacation pay. Such
payments pursuant to this paragraph shall constitute the full compensation of said Executive and he
and his estate shall have no further claim for compensation by reason of his employment by the
Company.
12. Assignment: The acts and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the Company.
13. Invalidity: If any paragraph or part of this Agreement is invalid, it shall not
affect the remainder of this Agreement but the remainder shall be binding and effective against all
parties.
14. Additional Compensation: If during the Term, this Agreement is terminated by the
Company (other than pursuant to the provisions of Section 15 hereof) or by the Executive due to
Constructive Discharge then the Executive shall receive termination pay in an amount equal to
2.99 times the average of the last three years compensation. For purposes of this Agreement,
Constructive Discharge shall mean:
|
|
|
Any reduction in salary below the Minimum Rate; |
|
|
|
|
A material change diminishing the Executives job function, authority,
duties or responsibilities, or a similar change deteriorating Executives
working conditions that would not be in accordance with the spirit of this
Agreement; |
|
|
|
|
A required relocation of Executive of more than 100 miles from
Executives current job location; or requires Executive to travel away from
Executives office in the course of discharging Executives
responsibilities in excess of that typically required of executives in
similar positions. |
|
|
|
|
Any breach of any of the terms of this Agreement by the Company, which
is not cured within 14 days following written notice thereof by Executive to the Company. |
The amount payable by the Company pursuant to this Section 14 shall be made in one lump sum cash
payment payable to the Executive no later than 30 days following termination of this Agreement.
15. Termination: The Company cannot terminate this agreement except for: 1) the
intentional, unapproved material misuse of corporate funds, 2a) professional incompetence (i.e. the
intentional refusal to perform or the inability to perform the duties associated with Executives
position with the Company in a competent manner, which is not cured within 15 days following
written notice to Executive) or 2b) willful neglect of duties or responsibilities in either case
not otherwise related to or triggered by the occurrence of any event or events described in or
prescribed by Section 14 hereof.
16. Indemnification: The Company hereby agrees to indemnify and hold the Executive
harmless from any loss for any company undertaking, as contemplated in Section 7 hereof, whereby a
claim, allegation or cause of action shall be made against the Executive in the performance of his
contractual duties except for willful illegal misconduct. Said indemnification shall include but
not be limited to reasonable cost incurred in defending the Executive in his faithful performance
of contractual duties.
17. Entire Agreement: This contract may not be changed except in writing and embodies
the whole Agreement between the parties hereto and there are no inducements, promises, terms,
conditions or obligations made or entered into by the Company or the Executive other than contained
herein. This Executive Employment Contract supercedes and replaces that certain Executive
Employment Contract dated June 12, 2006 between the Company and the Executive.
IN WITNESS WHEREOF, the parties here hereunto signed and sealed this Agreement the date first
above written.
|
|
|
|
|
Signed, Sealed and Delivered |
|
COMPANY |
In the presence of: |
|
PMC Commercial Trust |
|
|
|
|
|
/s/ Barry N. Berlin |
|
/s/ Andrew S. Rosemore |
|
|
|
|
|
By:
|
|
Andrew S. Rosemore |
|
|
|
|
Executive Vice President |
|
|
|
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
/s/ Jan F. Salit |
|
/s/ Lance B. Rosemore |
|
|
|
|
|
By:
|
|
Lance B. Rosemore, |
|
|
|
|
President and Chief Executive Officer |
|
|
(SEAL) |
exv10w2
Exhibit 10.2
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT made as of June 25, 2007 by and between PMC Commercial Trust, a Texas Real
Estate Investment Trust with its principal places of business in Dallas, Collin County, Texas,
hereinafter referred to as the COMPANY, and Andrew S. Rosemore, hereinafter referred to as
EXECUTIVE.
WITNESSETH THAT:
In consideration of the promises herein contained, the parties hereto mutually agree as
follows:
1. Employment: The Company hereby employs the Executive as its Executive Vice
President and Chief Operating Officer with such powers and duties as may be specified by the Board
of Trust Managers (the Board). The Executive hereby accepts employment upon the terms and
conditions as hereinafter set forth.
2. Term: Subject to the provisions for termination as hereinafter provided, the term
of this Agreement shall begin immediately and shall terminate on the earlier of (i) the Executives
seventieth (70th) birthday or (ii) June 30, 2010 or such later date as determined by the
Board (the Term). The Term of this Executive Employment Contract may be extended annually by the
Board.
3. Compensation: For all services rendered by the Executive under this contract, the
Executive shall be paid an annual salary at a minimum at the annual rate for the Executive
effective as of July 1, 2007 (the Minimum Rate). The Minimum Rate may be increased by the Board
at its discretion. The annual salary is payable pursuant to the normal payroll practices of the
Company.
The Board may consider bonus compensation for the Executive if the performance of the Company
and the Executive justifies such bonus compensation.
4. Authorized Expenses: The Executive is authorized to incur reasonable expenses for
the promotion of the business of the Company. The Company will reimburse the Executive for all
such reasonable expenses upon the presentation by the Executive, from time to time, of an itemized
account of such expenditures.
The Executive shall be entitled to such additional and other fringe benefits as the Board
shall from time to time authorize, including but not limited to: A) health insurance coverage for
the Executive, his wife and dependent children; B) a monthly automotive allowance of $550, which
the Executive is to use to obtain an automobile to be available for company needs. All operating
expenses such as maintenance, insurance and fuel (excluding fuel for company travel) will be the
responsibility and expense of the Executive.
5. Extent of Services: The Executive shall devote a substantial portion of business
time, attention
and energies to the business of the Company, and shall not, during the term of this Agreement,
engage in any other business activities, whether or not such activities are pursued for gain,
profit or other pecuniary advantage. This provision is not meant to prevent him from A) devoting
reasonable time to civic or philanthropic activities or B) investing his assets in such form or
manner providing that it does not require any substantial services on the part of the Executive
that will interfere with the Executives employment pursuant to this Agreement. Executives
employment is considered as full-time.
6. Working Facilities: The Executive shall be furnished with such facilities and
services suitable to his position and adequate for the performance of his duties.
7. Duties: The Executive is employed in an executive and supervisory capacity and
shall perform such duties consistent herewith as the Board of the Company shall from time to time
specify. Subject to the provisions of Section 14 hereof, the precise services of the Executive may
be extended or curtailed, from time to time, at the discretion of the Board of the Company.
8. Disclosure of Information: The Executive recognizes and acknowledges that the
Companys operating procedures or service techniques are valuable, special and unique assets of the
Companys business. The Executive will not, during or after the term of his employment, disclose
the list of the Companys customer base or service techniques to any person, firm, Company,
association or other entity for any reason or purpose whatsoever. In the event of breach or
threatened breach by the Executive of the provisions of this paragraph, the Company shall be
entitled to an injunction restraining any such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the Company for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Vacations: The Executive shall be entitled each year to a vacation in accordance
with the vacation contract addendum dated effective July 1, 1999.
10. Disability: If the Executive is unable to perform his services by reason of
illness or total incapacity, based on standards similar to those utilized by the U.S. Social
Security Administration, he shall receive his full salary for one (1) year of said total incapacity
through coordination of benefits with any existing disability insurance program provided by the
Company ( a reduction in salary by that amount paid by any Company provided insurance). Should
said Executive be totally incapacitated beyond a one-year period, so that he is not able to devote
full time to his employment with said Company, then this Agreement shall terminate.
11. Death During Employment: If the Executive dies during the term of employment and
has not attained the age of seventy years, the Company and/or any third party insurance provided by
the Company, through a coordination of benefits, shall pay the estate of the Executive a death
benefit equal to two times the Executives annual salary. In the event the Executive receives
death benefits payable under any group life insurance policy issued to the Company, the Companys
liability under this clause will be reduced by the amount of the death benefit paid under such
policy. The Company shall pay any remaining death benefits to the estate of the Executive over the
course of twelve (12) months in the same manner and under the same terms as the Executive would
have been paid if he had still been working for the Company. No later than one (1) month from the
date of death, the estate of the Executive will also be paid any accumulated vacation pay. Such
payments pursuant to this paragraph shall constitute the full compensation of said Executive and he
and his estate shall have no further claim for compensation by reason of his employment by the
Company.
12. Assignment: The acts and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the Company.
13. Invalidity: If any paragraph or part of this Agreement is invalid, it shall not
affect the remainder of this Agreement but the remainder shall be binding and effective against all
parties.
14. Additional Compensation: If during the Term, this Agreement is terminated by the
Company (other than pursuant to the provisions of Section 15 hereof) or by the Executive due to
Constructive Discharge then the Executive shall receive termination pay in an amount equal to
2.99 times the average of the last three years compensation. For purposes of this Agreement,
Constructive Discharge shall mean:
|
|
|
Any reduction in salary below the Minimum Rate; |
|
|
|
|
A material change diminishing the Executives job function, authority, duties
or responsibilities, or a similar change deteriorating Executives working
conditions that would not be in accordance with the spirit of this Agreement; |
|
|
|
|
A required relocation of Executive of more than 100 miles from Executives
current job location; or requires Executive to travel away from Executives
office in the course of discharging Executives responsibilities in excess of
that typically required of executives in similar positions. |
|
|
|
|
Any breach of any of the terms of this Agreement by the Company which is not
cured within 14 days following written notice thereof by Executive to the
Company. |
The amount payable by the Company pursuant to this Section 14 shall be made in one lump sum cash
payment payable to the Executive no later than 30 days following termination of this Agreement.
15. Termination: The Company cannot terminate this agreement except for: 1) the
intentional, unapproved material misuse of company funds, 2a) professional incompetence (i.e. the
intentional refusal to perform or the inability to perform the duties associated with Executives
position with the Company in a competent manner, which is not cured within 15 days following
written notice to Executive) or 2b) willful neglect of duties or responsibilities in either case
not otherwise related to or triggered by the occurrence of any event or events described in or
prescribed by Section 14 hereof.
16. Indemnification: The Company hereby agrees to indemnify and hold the Executive
harmless from any loss for any corporate undertaking, as contemplated in Section 7 hereof, whereby
a claim, allegation or cause of action shall be made against the Executive in the performance of
his contractual duties except for willful illegal misconduct. Said indemnification shall include
but not be limited to reasonable cost incurred in defending the Executive in his faithful
performance of contractual duties.
17. Entire Agreement: This contract may not be changed except in writing and embodies
the whole Agreement between the parties hereto and there are no inducements, promises, terms,
conditions or obligations made or entered into by the Company or the Executive other than contained
herein. This Executive Employment Contract supercedes and replaces that certain Executive
Employment Contract dated June 12, 2006 between the Company and the Executive.
IN WITNESS WHEREOF, the parties here hereunto signed and sealed this Agreement the date first
above written.
|
|
|
|
|
Signed, Sealed and Delivered |
|
COMPANY |
In the presence of: |
|
PMC Commercial Trust |
|
|
|
|
|
/s/ Jan F. Salit |
|
/s/ Lance B. Rosemore |
|
|
|
|
|
By:
|
|
Lance B. Rosemore |
|
|
|
|
President |
|
|
|
|
|
|
|
|
|
EXECUTIVE |
|
|
|
|
|
/s/ Barry N. Berlin |
|
/s/ Andrew S. Rosemore |
|
|
|
|
|
By:
|
|
Andrew S. Rosemore, |
|
|
|
|
Executive Vice President
and Chief Operating Officer |
|
|
|
|
|
|
|
(CORPORATE SEAL) |
exv10w3
Exhibit 10.3
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT made as of June 25, 2007 by and between PMC Commercial Trust, a Texas Real
Estate Investment Trust with its principal places of business in Dallas, Collin County, Texas,
hereinafter referred to as the COMPANY, and Jan F. Salit, hereinafter referred to as EXECUTIVE.
WITNESSETH THAT:
In consideration of the promises herein contained, the parties hereto mutually agree as
follows:
1. Employment: The Company hereby employs the Executive as its Executive Vice
President and Chief Investment Officer with such powers and duties as may be specified by the Board
of Trust Managers (the Board). The Executive hereby accepts employment upon the terms and
conditions as hereinafter set forth.
2. Term: Subject to the provisions for termination as hereinafter provided, the term
of this Agreement shall begin immediately and shall terminate on the earlier of (i) the Executives
seventieth (70th) birthday or (ii) June 30, 2010 or such later date as determined by the
Board (the Term). The Term of this Executive Employment Contract may be extended annually by the
Board.
3. Compensation: For all services rendered by the Executive under this contract, the
Executive shall be paid an annual salary at a minimum at the annual rate for the Executive
effective as of July 1, 2007 (the Minimum Rate). The Minimum Rate may be increased by the Board
at its discretion. The annual salary is payable pursuant to the normal payroll practices of the
Company.
The Board may consider bonus compensation for the Executive if the performance of the Company
and the Executive justifies such bonus compensation.
4. Authorized Expenses: The Executive is authorized to incur reasonable expenses for
the promotion of the business of the Company. The Company will reimburse the Executive for all
such reasonable expenses upon the presentation by the Executive, from time to time, of an itemized
account of such expenditures.
The Executive shall be entitled to such additional and other fringe benefits as the Board
shall from time to time authorize, including but not limited to: A) health insurance coverage for
the Executive, his wife and dependent children; B) a monthly automotive allowance of $550, which
the Executive is to use to obtain an automobile to be available for company needs. All operating
expenses such as maintenance, insurance and fuel (excluding fuel for company travel) will be the
responsibility and expense of the Executive.
5. Extent of Services: The Executive shall devote a substantial portion of business
time, attention and energies to the business of the Company, and shall not, during the term of this Agreement,
engage in any other business activities, whether or not such activities are pursued for gain,
profit or other pecuniary advantage. This provision is not meant to prevent him from A) devoting
reasonable time to civic or philanthropic activities or B) investing his assets in such form or
manner providing that it does not require any substantial services on the part of the Executive
that will interfere with the Executives employment pursuant to this Agreement. Executives
employment is considered as full-time.
6. Working Facilities: The Executive shall be furnished with such facilities and
services suitable to his position and adequate for the performance of his duties.
7. Duties: The Executive is employed in an executive and supervisory capacity and
shall perform such duties consistent herewith as the Board of the Company shall from time to time
specify. Subject to the provisions of Section 14 hereof, the precise services of the Executive may
be extended or curtailed, from time to time, at the discretion of the Board of the Company.
8. Disclosure of Information: The Executive recognizes and acknowledges that the
Companys operating procedures or service techniques are valuable, special and unique assets of the
Companys business. The Executive will not, during or after the term of his employment, disclose
the list of the Companys customer base or service techniques to any person, firm, Company,
association or other entity for any reason or purpose whatsoever. In the event of breach or
threatened breach by the Executive of the provisions of this paragraph, the Company shall be
entitled to an injunction restraining any such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the Company for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Vacations: The Executive shall be entitled each year to a vacation in accordance
with the vacation contract addendum dated effective July 1, 1999.
10. Disability: If the Executive is unable to perform his services by reason of
illness or total incapacity, based on standards similar to those utilized by the U.S. Social
Security Administration, he shall receive his full salary for one (1) year of said total incapacity
through coordination of benefits with any existing disability insurance program provided by the
Company (a reduction in salary by that amount paid by any Company provided insurance). Should said
Executive be totally incapacitated beyond a one-year period, so that he is not able to devote full
time to his employment with said Company, then this Agreement shall terminate.
11. Death During Employment: If the Executive dies during the term of employment and
has not attained the age of seventy years, the Company and/or any third party insurance provided by
the Company, through a coordination of benefits, shall pay the estate of the Executive a death
benefit equal to two times the Executives annual salary. In the event the Executive receives
death benefits payable under any group life insurance policy issued to the Company, the Companys
liability under this clause will be reduced by the amount of the death benefit paid under such
policy. The Company shall pay any remaining death benefits to the estate of the Executive over the
course of twelve (12) months in the same manner and under the same terms as the Executive would
have been paid if he had still been working for the Company. No later than one (1) month from the
date of death, the estate of the Executive will also be paid any accumulated vacation pay. Such
payments pursuant to this paragraph shall constitute the full compensation of said Executive and he
and his estate shall have no further claim for compensation by reason of his employment by the
Company.
12. Assignment: The acts and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the Company.
13. Invalidity: If any paragraph or part of this Agreement is invalid, it shall not
affect the remainder of this Agreement but the remainder shall be binding and effective against all
parties.
14. Additional Compensation: If during the Term, this Agreement is terminated by the
Company (other than pursuant to the provisions of Section 15 hereof) or by the Executive due to
Constructive Discharge then the Executive shall receive termination pay in an amount equal to
2.99 times the average of the last three years compensation. For purposes of this Agreement,
Constructive Discharge shall mean:
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Any reduction in salary below the Minimum Rate; |
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A material change diminishing the Executives job function, authority,
duties or responsibilities, or a similar change deteriorating Executives
working conditions that would not be in accordance with the spirit of this
Agreement; |
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A required relocation of Executive of more than 100 miles from
Executives current job location; or requires Executive to travel away from
Executives office in the course of discharging Executives
responsibilities in excess of that typically required of executives in
similar positions. |
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Any breach of any of the terms of this Agreement by the Company, which
is not cured within 14 days following written notice thereof by Executive to the Company. |
The amount payable by the Company pursuant to this Section 14 shall be made in one lump sum cash
payment payable to the Executive no later than 30 days following termination of this Agreement.
15. Termination: The Company cannot terminate this agreement except for: 1) the
intentional, unapproved material misuse of corporate funds, 2a) professional incompetence (i.e. the
intentional refusal to perform or the inability to perform the duties associated with Executives
position with the Company in a competent manner, which is not cured within 15 days following
written notice to Executive) or 2b) willful neglect of duties or responsibilities in either case
not otherwise related to or triggered by the occurrence of any event or events described in or
prescribed by Section 14 hereof.
16. Indemnification: The Company hereby agrees to indemnify and hold the Executive
harmless from any loss for any company undertaking, as contemplated in Section 7 hereof, whereby a
claim, allegation or cause of action shall be made against the Executive in the performance of his
contractual duties except for willful illegal misconduct. Said indemnification shall include but
not be limited to reasonable cost incurred in defending the Executive in his faithful performance
of contractual duties.
17. Entire Agreement: This contract may not be changed except in writing and embodies
the whole Agreement between the parties hereto and there are no inducements, promises, terms,
conditions or obligations made or entered into by the Company or the Executive other than contained
herein. This Executive Employment Contract supercedes and replaces that certain Executive
Employment Contract dated June 12, 2006 between the Company and the Executive.
IN WITNESS WHEREOF, the parties here hereunto signed and sealed this Agreement the date first
above written.
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Signed, Sealed and Delivered |
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COMPANY |
In the presence of: |
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PMC Commercial Trust |
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/s/ Andrew S. Rosemore |
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/s/ Lance B. Rosemore |
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By:
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Lance B. Rosemore |
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President |
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EXECUTIVE |
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/s/ Barry N. Berlin |
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/s/ Jan F. Salit |
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By:
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Jan F. Salit, |
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Executive Vice President and Chief Investment Officer |
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(CORPORATE SEAL) |
exv10w4
Exhibit 10.4
EXECUTIVE EMPLOYMENT CONTRACT
THIS AGREEMENT made as of June 25, 2007 by and between PMC Commercial Trust, a Texas Real
Estate Investment Trust with its principal places of business in Dallas, Collin County, Texas,
hereinafter referred to as the COMPANY, and Barry N. Berlin, hereinafter referred to as
EXECUTIVE.
WITNESSETH THAT:
In consideration of the promises herein contained, the parties hereto mutually agree as
follows:
1. Employment: The Company hereby employs the Executive as its Chief Financial
Officer with such powers and duties as may be specified by the Board of Trust Managers (the
Board). The Executive hereby accepts employment upon the terms and conditions as hereinafter set
forth.
2. Term: Subject to the provisions for termination as hereinafter provided, the term
of this Agreement shall begin immediately and shall terminate on the earlier of (i) the Executives
seventieth (70th) birthday or (ii) June 30, 2010 or such later date as determined by the
Board (the Term). The Term of this Executive Employment Contract may be extended annually by the
Board.
3. Compensation: For all services rendered by the Executive under this contract, the
Executive shall be paid an annual salary at a minimum at the annual rate for the Executive
effective as of July 1, 2007 (the Minimum Rate). The Minimum Rate may be increased by the Board
at its discretion. The annual salary is payable pursuant to the normal payroll practices of the
Company.
The Board may consider bonus compensation for the Executive if the performance of the Company
and the Executive justifies such bonus compensation.
4. Authorized Expenses: The Executive is authorized to incur reasonable expenses for
the promotion of the business of the Company. The Company will reimburse the Executive for all
such reasonable expenses upon the presentation by the Executive, from time to time, of an itemized
account of such expenditures.
The Executive shall be entitled to such additional and other fringe benefits as the Board
shall from time to time authorize, including but not limited to: A) health insurance coverage for
the Executive, his wife and dependent children; B) a monthly automotive allowance of $550, which
the Executive is to use to obtain an automobile to be available for company needs. All operating
expenses such as maintenance, insurance and fuel (excluding fuel for company travel) will be the
responsibility and expense of the Executive.
5. Extent of Services: The Executive shall devote a substantial portion of business
time, attention and energies to the business of the Company, and shall not, during the term of this Agreement,
engage in any other business activities, whether or not such activities are pursued for gain,
profit or other pecuniary advantage. This provision is not meant to prevent him from A) devoting
reasonable time to civic or philanthropic activities or B) investing his assets in such form or
manner providing that it does not require any substantial services on the part of the Executive
that will interfere with the Executives employment pursuant to this Agreement. Executives
employment is considered as full-time.
6. Working Facilities: The Executive shall be furnished with such facilities and
services suitable to his position and adequate for the performance of his duties.
7. Duties: The Executive is employed in an executive and supervisory capacity and
shall perform such duties consistent herewith as the Board of the Company shall from time to time
specify. Subject to the provisions of Section 14 hereof, the precise services of the Executive may
be extended or curtailed, from time to time, at the discretion of the Board of the Company.
8. Disclosure of Information: The Executive recognizes and acknowledges that the
Companys operating procedures or service techniques are valuable, special and unique assets of the
Companys business. The Executive will not, during or after the term of his employment, disclose
the list of the Companys customer base or service techniques to any person, firm, Company,
association or other entity for any reason or purpose whatsoever. In the event of breach or
threatened breach by the Executive of the provisions of this paragraph, the Company shall be
entitled to an injunction restraining any such breach. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the Company for such breach
or threatened breach, including the recovery of damages from the Executive.
9. Vacations: The Executive shall be entitled each year to a vacation in accordance
with the vacation contract addendum dated effective July 1, 1999.
10. Disability: If the Executive is unable to perform his services by reason of
illness or total incapacity, based on standards similar to those utilized by the U.S. Social
Security Administration, he shall receive his full salary for one (1) year of said total incapacity
through coordination of benefits with any existing disability insurance program provided by the
Company ( a reduction in salary by that amount paid by any Company provided insurance). Should
said Executive be totally incapacitated beyond a one-year period, so that he is not able to devote
full time to his employment with said Company, then this Agreement shall terminate.
11. Death During Employment: If the Executive dies during the term of employment and
has not attained the age of seventy years, the Company and/or any third party insurance provided by
the Company, through a coordination of benefits, shall pay the estate of the Executive a death
benefit equal to two times the Executives annual salary. In the event the Executive receives
death benefits payable under any group life insurance policy issued to the Company, the Companys
liability under this clause will be reduced by the amount of the death benefit paid under such
policy. The Company shall pay any remaining death benefits to the estate of the Executive over the
course of twelve (12) months in the same manner and under the same terms as the Executive would
have been paid if he had still been working for the Company. No later than one (1) month from the
date of death, the estate of the Executive will also be paid any accumulated vacation pay. Such
payments pursuant to this paragraph shall constitute the full compensation of said Executive and he
and his estate shall have no further claim for compensation by reason of his employment by the
Company.
12. Assignment: The acts and obligations of the Company under this Agreement shall
inure to the benefit of and be binding upon the successors and assigns of the Company.
13. Invalidity: If any paragraph or part of this Agreement is invalid, it shall not
affect the remainder of this Agreement but the remainder shall be binding and effective against all
parties.
14. Additional Compensation: If during the Term, this Agreement is terminated by the
Company (other than pursuant to the provisions of Section 15 hereof) or by the Executive due to
Constructive Discharge then the Executive shall receive termination pay in an amount equal to
2.99 times the average of the last three years compensation. For purposes of this Agreement,
Constructive Discharge shall mean:
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Any reduction in salary below the Minimum Rate; |
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A material change diminishing the Executives job function, authority,
duties or responsibilities, or a similar change deteriorating Executives
working conditions that would not be in accordance with the spirit of this
Agreement; |
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A required relocation of Executive of more than 100 miles from
Executives current job location; or requires Executive to travel away from
Executives office in the course of discharging Executives
responsibilities in excess of that typically required of executives in
similar positions. |
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Any breach of any of the terms of this Agreement by the Company, which
is not cured within 14 days following written notice thereof by Executive to the Company. |
The amount payable by the Company pursuant to this Section 14 shall be made in one lump sum cash
payment payable to the Executive no later than 30 days following termination of this Agreement.
15. Termination: The Company cannot terminate this agreement except for: 1) the
intentional, unapproved material misuse of company funds, 2a) professional incompetence (i.e. the
intentional refusal to perform or the inability to perform the duties associated with Executives
position with the Company in a competent manner, which is not cured within 15 days following
written notice to Executive) or 2b) willful neglect of duties or responsibilities in either case
not otherwise related to or triggered by the occurrence of any event or events described in or
prescribed by Section 14 hereof.
16. Indemnification: The Company hereby agrees to indemnify and hold the Executive
harmless from any loss for any corporate undertaking, as contemplated in Section 7 hereof, whereby
a claim, allegation or cause of action shall be made against the Executive in the performance of
his contractual duties except for willful illegal misconduct. Said indemnification shall include
but not be limited to reasonable cost incurred in defending the Executive in his faithful
performance of contractual duties.
17. Entire Agreement: This contract may not be changed except in writing and embodies
the whole Agreement between the parties hereto and there are no inducements, promises, terms,
conditions or obligations made or entered into by the Company or the Executive other than contained
herein. This Executive Employment Contract supercedes and replaces that certain Executive
Employment Contract dated June 12, 2006 between the Company and the Executive.
IN WITNESS WHEREOF, the parties here hereunto signed and sealed this Agreement the date first
above written.
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Signed, Sealed and Delivered |
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COMPANY |
In the presence of: |
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PMC Commercial Trust |
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/s/ Jan F. Salit |
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/s/ Lance B. Rosemore |
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By:
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Lance B. Rosemore |
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President |
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EXECUTIVE |
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/s/ Andrew S. Rosemore |
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/s/ Barry N. Berlin |
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By:
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Barry N. Berlin, |
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Chief Financial Officer |
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(CORPORATE SEAL) |
exv10w5
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (the Agreement) is made and entered into this 5th day of June 2007
(the Effective Date) between PMC Commercial Trust (the Company), and Ron Dekelbaum
(Employee). This Agreement replaces and supercedes any previous Agreements between the two
parties.
WHEREAS, the Company wishes to employ Employee as of the Effective Date, pursuant to the terms
and conditions set forth below; and
WHEREAS, Employee is likewise desirous of obtaining employment with the Company as of the
Effective Date, pursuant to the terms and conditions set forth below:
NOW, THEREFORE, in consideration of the foregoing premises, the mutual agreements contained
herein and other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, this Agreement is hereby entered into as of the Effective Date as to
read as follows:
ADHERENCE TO RULES
1. At all times during his employment with the Company, Employee agrees to strictly adhere to,
sign, acknowledge, and obey all the rules, regulations, handbooks, covenants, and policies, now in
effect or as subsequently modified, governing the conduct of employees of the Company.
PAGE 1
TERM OF EMPLOYMENT
2. The term of Employees employment under this Agreement will begin upon execution of this
Agreement and will continue thereafter until May 1, 2008. The employment is at-will meaning the
Company or Employee can terminate the employment relationship at any time for any reason.
COMPENSATION OF EMPLOYEE
3. Base Salary. During Employees employment with the Company, he shall receive his regular
Base Salary of $160,992 less required withholdings to federal, state, and local taxing authorities,
payable to Employee on a semi-monthly basis, or otherwise in accordance with Companys then
applicable payroll procedures. Employee shall be entitled to participate in such benefit plans
currently in effect and maintained by the Company for its employees, in accordance with the terms
of such plans, as the same may be amended by the Company from time to time. The Company will pay
for health insurance for the Employee and make available health insurance for immediate family
members reimbursable by the Employee at the Companys cost.
4. Additional Compensation. Bonus compensation is at the discretion of the Chief Executive
Officer based on the direction from the Compensation Committee of the Board of Trust Managers.
PAGE 2
TERMINATION OF EMPLOYMENT
5. Severance. In the event an Agreement is executed which results in a change of control or sale of the
company prior to May 1, 2008 which thereby results in the Employees termination or elimination of
the Employees position, the Employee will be paid severance in the amount of $160,992 paid within
10 days of termination less lawful deductions. In the event of the sale of all or substantially
all of the assets of the Company, it will be the responsibility of the Company to notify the
Purchaser or Purchasers of the obligations under this Agreement and to ensure that the Purchaser or
Purchasers will assume the obligations under this Agreement.
6. Arbitration. If efforts to resolve a claim, dispute or controversy through dialogue are
determined by either party to be unsuccessful, then in that event, upon the written request of one
party served upon the other, any such claim, dispute or controversy shall be submitted to and
settled by arbitration in accordance with the Companys arbitration policy.
MISCELLANEOUS
7. Vacation. The employee shall be entitled to three weeks of paid vacation per year, which
shall be earned during the year.
8. CLE/Bar License Fees. The Employee shall be reimbursed by the Company for
reasonable professional and continuing legal education fees not to exceed $3,000 in a
calendar year.
This Agreement and any amendments hereto shall inure to the benefit of and be binding upon the
Company and its successors and assigns, and shall be binding upon Employee and his heirs,
executors, and legal representatives. This Agreement supersedes all other oral and written
agreements, understandings, and communications between Employee and the Company, any of its
Affiliates, or any of their respective shareholders, directors, officers, employees, agents
PAGE 3
or attorneys, and constitutes the entire agreement between the parties, with respect to the
employment of Employee. The parties acknowledge and agree that there are no agreements,
understandings, communications, representations or warranties with respect to such employment other
than those expressed in this Agreement.
This Agreement and any amendments hereto shall be governed by and construed in accordance with
the laws of the State of Texas, without giving effect to the conflicts of laws provisions thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first
written above.
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EMPLOYEE: |
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PMC COMMERCIAL TRUST |
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By:
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/s/ Ron H. Dekelbaum
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By:
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/s/ Jan F. Salit |
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Ron H. Dekelbaum
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Name:
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/s/ Jan F. Salit |
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Title:
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Executive Vice President |
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Date:
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June 5, 2007 |
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PAGE 4
exv31w1
EXHIBIT 31.1
CERTIFICATION
I, Lance B. Rosemore, Chief Executive Officer, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of PMC Commercial Trust; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the periods
presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a) |
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designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
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b) |
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designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
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c) |
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evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
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d) |
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disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants internal control over
financial reporting; and |
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The registrants other certifying officer and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the registrants
auditors and the audit committee of the registrants board of directors (or persons
performing the equivalent functions): |
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a) |
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all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and |
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b) |
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any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants internal
control over financial reporting. |
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Date:
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8/9/07
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/s/ Lance B. Rosemore |
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Lance B. Rosemore |
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Chief Executive Officer |
exv31w2
EXHIBIT 31.2
CERTIFICATION
I, Barry N. Berlin, Chief Financial Officer, certify that:
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1. |
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I have reviewed this quarterly report on Form 10-Q of PMC Commercial Trust; |
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2. |
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Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report; |
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3. |
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Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report; |
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4. |
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The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have: |
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a) |
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designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared; |
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b) |
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designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles; |
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c) |
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evaluated the effectiveness of the registrants disclosure
controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
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d) |
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disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter (the registrants fourth quarter in
the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal control over financial
reporting; and |
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5. |
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The registrants other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrants auditors and the audit committee of the registrants board of directors
(or persons performing the equivalent functions): |
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a) |
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all significant deficiencies in the design or operation of
internal control over financial reporting which are reasonably likely to
adversely affect the registrants ability to record, process, summarize and
report financial information; and |
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b) |
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any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrants internal
control over financial reporting. |
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Date:
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8/9/07
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/s/ Barry N. Berlin |
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Barry N. Berlin |
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Chief Financial Officer |
exv32w1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PMC Commercial Trust (the Company) on Form
10-Q for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Lance B. Rosemore, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that
to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Lance B. Rosemore
Lance B. Rosemore
Chief Executive Officer
August 9, 2007
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
A signed original of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has
been provided to the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.
exv32w2
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of PMC Commercial Trust (the Company) on Form
10-Q for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the
date hereof (the Report), I, Barry N. Berlin, Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that
to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
/s/ Barry N. Berlin
Barry N. Berlin
Chief Financial Officer
August 9, 2007
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed
filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
A signed original of this statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has
been provided to the Company and will be retained by the Company and furnished to the Securities
and Exchange Commission or its staff upon request.